m 


H 22223 r 


UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


SCHOOL  OF  LAW 
LIBRARY 


INNOCENT  PURCHASER 

OF  OIL  AND  GAS 

LEASE. 

A  Discussion 
Of  the  Estate  Created 
By  An  Oil  &  Gas  Lease 


R.  E.  HARDWICKE 

Of  the  Wichita  Falls  Bar 


OIL  &  GAS  LEGAL  SERVICE 

MARTIN  STATIONERY  COMPANY 

Dallas,  Texas 

1921 


r 
H 


Copyright  1921 
By  H.  B.  MARTIN 

All  rights  reserved 


TABLE  OF  CONTENTS 


Page 

Name  and  Nature  of  Estate  Created  by  Lease 5 

Theory  that  Oil  and  Gas  are  Migratory 6 

National  Oil  &  Pipe  Line  Co.  v.  Teel,  95  Tex. 

586,  discussed  12 

Theory  that  Lease  is  Only  an  Option 13 

Effect  of  Payment  of  Consideration  for  Right  to 

Drill  During  Definite  Term  15 

Theory  that  Lease  is  Non-negotiable  Instrument....  16 
Supreme  Court  Ignores  Teel  Case  as  Applicable 

to  Usual  Lease  20 

What  is  Nominal  Consideration?  22 

Theory  that  Title  is  Inchoate  until  Production 

Obtained 26 

Various   Names    Applied    to   Lease    or   Estate 

Created    32 

Lease 32 

Franchise  33 

Incorporeal  Hereditament  33 

Chattel  Real 33 

Mere  Option 33 

License  34 

License  Coupled  with  Interest 34 

Profit  a  Prendre 34 

Profit  a  Prendre  True  Designation  35 

Estate  in  Lands  Created,  Regardless  of  Name 49 

Texas  Cases  Holding  Estate  in  Lands  Exists 52 

Supreme  Court  Designates  as  Profit  a 

Prendre 52 

Mineral  Leases 53 

Agricultural  Leases 58 

Other  Analogous  Instruments 58 

Reason   Requiring   Joinder   Wife   in  Lease   on 

Homestead  59 

Lease  as  Interference  with  Use  of  Home- 
stead   62 

Legal  Estate  Created  by  Lease 66 


783411 


Lesaee  Has  Legal  Estate  or  Equitable  Estate 

Subject  to   67 

Registration  Laws  and  Can  Defend  as 

Innocent  Purchaser 68 

Legal   Title   Not  Necessary  to   Support 

Defense 69 

Equitable  Title  Will  Support  Defense 70 

Cases  Following  Teel  Case  70 

Aurelius  v.  Stewart,  219  S.  W.  863 70 

Hitson  v.  Oilman,  220  S.  W.  140 72 

Varnes  v.  Dean,  228  S.  W.  1017 73 

Common  Error  in  Cases  Discussed  74 

Texas  Cases  Holding  can  Defend  as  Innocent 

Purchaser 76 

Fox  v.  Bobbins,  62  S.  W.  815 76 

Gilmore  v.  O'Neil,  107  Tex.  18,  Overrul- 
ing Teel  Case  as  Usually  Construed 78 

Lessee  Protected  as  Innocent  Purchaser  Other 

Jurisdictions 87 

Moore  v.  Sawyer,  167  Fed.  826 87 

Aye  v.  Philadelphia,  44  Atl.  (Pa.)  556 87 

Thompson  v.  Christie,  20  Atl.  (Pa.)  934... .87 
Waskey  v.  Chambers,  224  U.  S.  564,  56 

L.  Ed.  886  87 

Purchaser  of  Lease  on  Building  is  Protected 91 

Rule  of  Pro  Tanto  Protection  96 

Lessee  Protected  When  Having  Better  Equity.. ..101 

Basis  of  Innocent  Purchaser  Rule 

Species  of  Estoppel  103 

Effects  of  Registration  Statutes 105 

Cases  Applying  Better  Rule 106 

Policy  of  Registration  Statutes  107 

Final  Conclusions ..110 


Innocent  Purchaser 
of  an  Oil  and  Gas  Lease 


WHAT  IS  THE  NAME  AND  NATURE  OF  THE 
ESTATE  CREATED  BY  THE  ORDINARY  MIN- 
ERAL LEASE,  AS  DISTINGUISHED  FROM  A  CON- 
VEYANCE OF  MINERALS  IN  PLACE? 

In  the  most  common  form  of  instrument  the 
landowner,  called  lessor,  "leases,  demises  and  lets" 
the  land  to  another,  called  lessee,  for  the  purpose 
of  having  the  same  developed  for  oil  and  gas,  with 
the  right  to  appropriate  the  minerals  obtained 
through  the  operations,  and  deliver  a  part  thereof, 
usually  one-eighth,  as  royalty  to  the  lessor.  Ordin- 
arily, the  right  to  enter  and  develop  is  limited  to  a 
five-year  period,  unless  oil  or  gas  is  found  in  paying 
quantities  within  such  period,  in  which  last  event 
the  right  to  develop  continues  as  long  as  oil  or  gas 
is  produced  in  paying  quantities.  It  is  usually 
provided  that,  if  the  lessee  fails  to  begin  operations 
within  one  year,  his  right  shall  terminate,  but  may 
be  extended  from  year  to  year,  but  not  beyond  the 
five-year  period,  by  payment  of  a  stated  con- 
sideration. 


6  INNOCENT  PURCHASER 

There  is  another  type  of  instrument  in  general 
use  which  is  practically  identical  with  the  instru- 
ment outlined  above,  except  that  the  grantor  or  les- 
sor "grants,  sells  and  conveys  all  the  oil  and  gas  in  and 
under  the  land."  Except  for  the  language  in  the 
granting  clauses,  the  provisions  in  the  two  in- 
struments are  practically  the  same. 

The  layman,  in  speaking  of  such  instruments, 
uses  the  term  "lease",  and  this  designation  is  for 
convenience  generally  adopted  by  the  courts  in 
those  instances  where  correct  nomenclature  is  not 
involved,  and  will  so  be  used  herein. 

More  than  anything  else,  the  great  confusion 
existing  in  oil  law  has  been  caused  by  the  assumption 
in  the  earlier  decisions  that  oil  and  gas  are  mig- 
ratory to  a  remarkable  extent,  that  they  wander 
about  with  the  utmost  freedom — here  today  and 
there  tomorrow.  The  vagrant  nature  of  oil  or  gas 
has  been  likened  to  subterranean  streams,  but  more 
often  to  ferae  naturae;  and,  in  discussing  their 
ability  of  self-transmission,  the  terms  fugitive,  fu- 
gacious, volatile  and  nomadic  are  in  common  use. 
This  concept  has  been  accepted  in  the  later  deci- 
sion. Ohio  Co.  v.  Indiana,  177  U.  S.  190,  44  L.  Ed. 
729;  Texas  Co.  v.  Daugherty,  176  S.  W.  717;  107 
Tex.  226;  Grub  v.  McAfee,  212  S.  W.  (Tex.)  464. 
Out  of  this  theory  grew  the  rule  that  leases  are  to 
be  construed  most  strictly  against  the  lessee,  and 
to  the  end  that  the  lessee  should  be  required  to 
develop  without  delay  and  produce  oil  or  gas  be- 
fore it  should  escape  to  neighboring  lands.  The 
rule  as  to  strict  construction  was  formulated  to  oc- 
casion development  under  those  leases  where  no 
time  limit  was  fixed  for  commencement  of  opera- 
tions, or  where  the  real  consideration  for  the  lease 
was  development.  Necessarily,  under  such  condi- 
tions, it  was  proper  to  hold  that  the  lease  should  be 


OF  OIL  AND  GAS  LEASE  ^ 

strictly  construed  and  with  the  view  of  imposing 
upon  the  lessee  the  obligation  of  development  with- 
in a  reasonable  time  under  penalty  of  loss  of  the 
lease,  for  it  is  clear  that  the  lessee  should  not  be 
permitted,  under  such  circumstances,  to  hold  the 
lease  for  speculative  purposes  and  without  drilling. 
See  Thornton  Oil  &  Gas,  2nd  Edition,  Sec.  83.  The 
courts  have,  however,  adopted  the  rule  generally, 
and  without  regard  to  the  reason  for  the  rule  or  the 
conditions  which  it  was  designed  to  meet,  so  that 
now  all  questions  as  to  the  rights  of  the  parties 
are  approached  with  the  lessor  being  the  favored 
litigant. 

Going  back  to  the  supposed  migratory  nature  of 
oil  and  gas,  it  seems  to  be  almost  the  unanimous 
opinion  of  petroleum  geologists  and  experienced 
operators  that  oil  or  gas,  but  particularly  oil,  does 
not  wander  about  and  does  not  possess  the  quality 
of  self-transmission,  except  to  a  limited  extent. 
Ages  ago  there  doubtless  was  more  or  less  move- 
ment of  these  minerals,  but  after  they  once  accu- 
mulated or  were  trapped  in  the  underground  reser- 
voir, these  minerals  were  confined  as  in  a  tank,  and 
are  little  more  mobile  than  a  deposit  of  coal,  until 
the  reservoir  is  penetrated  by  the  drill,  and  even 
after  a  well  is  drilled  into  the  sand  the  drainage 
is  very  small,  only  a  few  acres  being  drained  by 
each  well.  It  is,  therefore,  asserted  as  a  fact  that 
oil  and  gas  are  not  migrating  in  what  may  be  desig- 
nated as  a  state  of  nature. 

As  a  further  conclusion  from  the  idea  that  oil 
and  gas  are  migratory — roaming  underground  pas- 
sages like  wild  beasts — the  courts  announced  the 
doctrine  that  oil  and  gas  were  not  susceptible  of 
ownership  separate  and  apart  from  the  land,  and 
therefore  a  deed  to  such  minerals  simply  amounted 
to  a  right  to  drill  and  to  appropriate  such  minerals 
as  should  be  reduced  to  possession.  It  was  held 


8  INNOCENT  PURCHASER 

that  oil  or  gas  could  not  be  conveyed  in  place  in 
similar  manner  as  a  solid  mineral,  for  the  owner 
of  the  land  had  no  more  title  to  the  oil  or  gas  wan- 
dering under  his  land  than  he  did  to  the  wild  beasts 
traversing  his  fields.  The  case  of  Ohio  Co.  v. 
Indiana,  177  U.  S.  190,  44  L.  Ed.  729,  is  the  most 
conspicuous  of  these  decisions.  The  courts  holding 
such  view  therefore  disregarded  the  language  of  an 
instrument,  even  though  in  the  form  of  a  deed  suf- 
ficient to  convey  fee  simple  title,  and  it  was  held 
that  the  landowner  could  grant  only  the  right  to 
prospect  and  to  reduce  to  possession  such  oil  or  gas 
as  should  be  brought  to  the  surface. 

Some  courts  carry  this  idea  to  a  logical  con- 
clusion by  holding  that  a  deed  containing  an  ex- 
ception or  reservation  with  respect  to  oil  or  gas 
does  not  leave  in  the  grantor  any  title  to  such  min- 
erals, but  simply  a  right  to  enter  and  develop. 
Ramsey  v.  Stephaney,  173  Pac.  (Okla.)  72;  Frost 
Lbr.  Co.  v.  Heirs  of  Sailing,  by  Supreme  Court  of 
Louisiana,  opinion  not  as  yet  reported,  but  dated 
January  5,  1920.  In  the  Louisiana  case  rehearing 
was  granted  and  it  is  possible  the  Court  may  change 
its  views.  Other  courts  are  not  so  consistent  as  the 
Oklahoma  and  Louisiana  courts  for,  while  holding 
that  a  deed  to  oil  or  gas  creates  only  the  right  to 
enter  and  develop,  yet  it  is  announced,  in  effect, 
that  a  reservation  or  exception  of  these  minerals 
leaves  the  grantor  with  a  severed  estate  of  the 
dignity  of  a  fee.  See  Thornton  on  Oil  &  Gas,  2nd. 
Ed.  Section  342. 

The  Supreme  Court  of  Texas  indirectly,  if  not 
directly,  overruled  previous  cases  by  that  Court,  as 
well  as  cases  by  the  Courts  of  Appeals,  by  deciding 
that  oil  or  gas  in  place  was  susceptible  of  ownership 
separate  and  apart  from  ownership  of  the  surface, 
and  therefore  the  title  to  such  minerals  in  place 
could  be  conveyed,  and  a  separate  fee  would  there- 


OF  OIL  AND  GAS  LEASE  9 

by  exist.  The  Court  in  the  same  decision  approved, 
however,  the  theory  that  oil  and  gas  are  vagrant 
and  nomadic.  Texas  Co.  v.  Daugherty,  107  Tex. 
226,  176  S.  W.  717.  The  Daugherty  case  is  against 
the  weight  of  authority,  and  will  lead  to  no  end  of 
confusion,  but  a  discussion  of  the  case  and  its  effect 
has  no  place  in  this  article.  The  case  of  Davis  v. 
Texas  Company,  232  S.  W.  549,  decided  by  the  Gal- 
veston  Court  of  Appeals  March  3,  1921. 
with  dissenting  opinion  by  Special  Chief  Son- 
field,  is  splendid  evidence  of  the  difficulties 
encountered  in  following  the  Daugherty  case. 
It  may,  however,  be  considered  as  now  set- 
tled in  Texas  that,  where  the  instrument 
comes  within  the  holding  in  the  Daugherty  case,  a 
legal  title  is  created;  title  to  corporeal  property 
vests  in  the  grantee,  though  perhaps  upon  con- 
ditions subsequent.  And,  having  a  legal  title,  it 
should  follow  that  the  defense  of  innocent  pur- 
chaser will  not  be  denied,  and  it  has  been  so  held. 
McKay  v.  Lucas,  220  S.  W.  172,  Hickernell  v. 
Gregory,  224  S.  W.  691. 

We  now  reach  the  question:  Do  the  instru- 
ments in  common  use,  whether  using  in  the  grant- 
ing clause  the  words  "lease,  demise  and  let"  or 
"grant,  sell  and  convey"  create  an  estate  in  lands 
or  vest  such  title  that  the  lessee  can  assert  the 
defense  of  innocent  purchaser? 

Starting  from  the  premise  that  oil  and  gas  in 
place  are  not  in  fact  migratory,  but  are  as  immobile 
as  a  deposit  of  coal  until  the  reservoir  is  penetrated 
and  the  oil  or  gas  drawn  to  the  surface,  thereby 
causing  a  lateral  movement  and,  to  a  certain  ex- 
tent, the  drainage  of  surrounding  territory,  it  fol- 
lows that  a  severance  of  the  mineral  and  surface 
estates  can  be  effected  in  Texas  by  conveyance  or 
exception.  But  do  instruments  of  the  types  men- 


10  INNOCENT  PURCHASER 

tioned  above,  when  properly  construed,  show  an 
intention  to  convey  the  oil  or  gas  in  place  and  to 
pass  title  to  such  minerals  rather  than  to  create 
the  right  to  prospect  which  may,  however,  even- 
tually result  in  title  vesting  in  the  lessee?  As  to 
those  instruments  using  the  words  "lease,  demise 
and  let",  it  seems  that  there  is  no  intention  to  con- 
vey the  minerals  in  place.  With  respect  to  the 
instruments  using  the  language  "grant,  sell  and 
convey",the  question  is  a  little  more  difficult.  The 
strict  common  law  rule  of  construction  does  not  now 
prevail,  and  therefore  the  granting  clause  is  not 
considered  to  be  of  such  dignity  that  subsequent 
clauses  and  provisions  will  be  ignored,  if  not  clearly 
repugnant.  The  courts  now  hold  that  an  instrument 
will  be  examined  from  its  four  corners,  in  order  to 
ascertain  intention,  and  intention  may  appear  as 
clearly  in  the  habedum  or  following  clauses  as  in 
the  granting  clause.  Adopting  this  sensible  rule 
of  construction,  does  it  follow  that  an  instrument 
is  to  be  construed  as  a  deed  to  minerals,  where  the 
words  in  the  granting  clause  are  "grant,  sell  and 
convey",  and  so  construed  without  reference  to  the 
intention  of  the  parties,  as  disclosed  by  the  sub- 
sequent clauses  and  provisions? 

It  is  admitted,  of  course,  as  being  settled  in 
this  state,  that  minerals  may  be  conveyed  upon  con- 
ditions subsequent,  and  the  conditions  may  embrace 
drilling  operations  or  payment  for  delay,  or  con- 
tinued production.  Southern  Oil  Co.  v.  Colquitt, 
69  S.  W.  169;  Texas  Co.  v.  Daugherty,  107  Tex. 
226,  176  S.  W.  717;  Thomason  v.  Upshur  County, 
211  S.  W.  325;  Jackson  v.  Pure  Oil,  217  S.  W.  959; 
McKay  v.  Lucas,  220  S.  W.  172;  Hickernell  v. 
Gregory,  224  S.  W.  691;  Richmond  v.  Hogg  Creek 
Co.,  229  S.  W.  563.  Therefore,  it  cannot  be  said 
that  every  instrument  which  provides  for  the  ter- 
mination of  the  right  to  enter  and  develop  if  cer- 


OF  OIL  AND  GAS  LEASE  H 

tain  things  are  not  done  should  be  construed  as  a 
lease  and  not  a  deed.  Since  the  court  looks  to 
the  entire  instrument  to  discover  intention,  it  seems 
clear  that  a  great  number  of  the  instruments  which 
in  the  granting  clause  use  the  words  "grant,  sell 
and  convey"  should  be  construed  as  leases,  or  rather 
as  not  passing  title  to  the  minerals,  but  as  giving 
only  the  right  to  enter,  develop  and  appropriate 
such  minerals  as  may  be  found.  From  a  practical 
standpoint,  the  rights  of  the  lessee  in  an  instrument 
using  the  language  "grant,  sell  and  convey"  are  the 
same  as  if  holding  under  an  instrument  using  the 
language  "lease,  demise  and  let."  In  each  instance 
the  lessee  is  given  the  right  to  enter  and  develop 
and  to  appropriate  the  production,  and  this  right 
terminates  if  not  exercised  within  a  stated  period, 
or  if  consideration  is  not  paid  for  delay  in  com- 
mencing operations,  and  at  all  events  the  right 
terminates  at  a  definite  time  if  production  is  not 
obtained  in  paying  quantities.  Whenever  pro- 
duction is  obtained  in  paying  quantities,  the  right  to 
develop  and  to  produce  continues  as  long  as  the 
mineral  is  produced  in  paying  quantities. 

A  lessee  has  no  more  privileges  under  one  type 
of  instrument  than  he  has  under  the  other.  The  in- 
struments simply  provide  for  the  development  of 
the  land  and  distribution  of  the  minerals  which  are 
discovered.  For  this  reason,  the  parties  usually 
attach  little  or  no  significance  to  the  language  in 
the  granting  clause.  The  thing  that  the  landowner 
is  interested  in  giving,  and  the  thing  that  the 
operator  is  interested  in  obtaining,  is  the  right  to 
enter  on  the  land,  to  the  exclusion  of  all  others, 
for  the  purpose  of  discovering  and  producing  min- 
erals that  exist,  and  to  distribute  such  minerals  in 
accordance  with  the  lease,  usually  one-eight  to  the 
landowner  and  seven-eights  to  the  operator.  See 
Marnett  Co.  v.  Munsey,  232  S.  W.  867  opinion  by 


12  INNOCENT  PURCHASER 

Texarkana  Court  of  Appeals  filed  May  12,  1921. 

In  order  to  discuss  intelligently  the  character  of 
title  created  by  the  ordinary  lease,  it  is  necessary 
to  dispose  of  two  errors  into  which  our  courts  have 
fallen.  First,  with  respect  to  the  case  of  National 
Oil  Co.  v.  Teel,  95  Tex.  586;  second,  with  respect 
to  the  idea  that  title  is  inchoate  until  operations  are 
begun  or  production  is  obtained.  The  same  theory 
is  the  basis  of  both  errors. 

TEEL  CASE  DISCUSSED 

Since  the  decision  of  the  Supreme  Court  in  the 
case  of  National  Oil  Co.  v.  Teel,  95  Tex.  586,  our 
courts,  with  eyes  closed  to  fundamental  principles, 
have  repeated  time  after  time  that,  unless  the  in- 
strument is  a  deed,  the  lessee  has  only  an  option 
which  may  ripen  into  some  greater  right,  if  not  to 
the  dignity  of  a  title,  if  the  lessee  exercises  the 
options  which  are  given  to  him.  It  is  true  that  the 
ordinary  lease  creates  options,  but  it  does  not  follow 
that  an  estate  in  lands  is  not  created  at  the  same 
time.  A  typical  case  is  that  of  Bailey  v.  Williams, 
223  S.  W.  311,  by  the  Austin  Court  of  Appeals, 
holding  that  a  lessee  has  nothing  but  an  option  to 
explore  until  minerals  are  produced.  In  reality 
the  instrument  involved  in  the  case  was  a  deed, 
not  a  lease.  It  is  almost  identical  with  the  instru- 
ment in  the  Daugherty  case,  and  apparently  the 
Court  of  Appeals  overlooked  the  Supreme  Court 
decision.  Beyond  question,  the  ordinary  lease, 
though  in  form  a  mineral  deed  with  conditions  sub- 
sequent, creates  an  option  in  the  lessee,  and  like 
all  options,  the  rights  are  not  mutual,  and  the  in- 
strument is  unilateral.  Because  the  instrument 
creates  an  option,  it  does  not  follow  that  an  estate 
in  lands  less  than  a  fee  is  not  created  at  the  same 
time.  Let  us  consider  a  mineral  deed  with  con- 
ditions subsequent,  such  as  was  involved  in  the 
Texas  Company — Daugherty  case  and  those  follow- 


OF  OIL  AND   GAS  LEASE  13 

ing  it  and  cited  above.  Title  to  the  minerals  passes 
to  the  grantee,  but  nevertheless  the  grantee  clearly 
has  the  option  to  drill  or  not  to  drill,  to  pay  or  not 
to  pay,  and  thereby  terminate  the  estate.  An  in- 
strument of  this  character  has  just  as  many  optional 
features  as  the  "lease,  demise  and  let"  form ;  there- 
fore, the  fact  that  a  lessee  acquires  an  option  and 
can  terminate  the  estate  does  not  determine  whether 
or  not  he  has  an  estate  in  lands. 

Our  courts  forget  that  there  are  many  estates 
in  lands  which  are  purely  optional.  A  leases  to 
B  a  dwelling  or  a  farm  for  five  years  by  an  instru- 
ment which  contains  an  ipso  facto  forfeiture  clause 
with  respect  to  the  failure  of  B  to  pay  any  monthly 
rental,  which  by  the  instrument  he  agrees  to  pay; 
or  A  leases  to  B  for  five  years,  with  option  of  re- 
newal from  year  to  year.  An  interest  in  lands,  a 
legal  estate,  though  less  than  a  freehold,  is  created. 
Dority  v.  Dority,  96  Tex.  215,  71  S.  W.  950;  Starke 
v.  Guffey  Co.,  98  Tex.  542,  86  S.  W.  I.  However, 
the  lessee,  as  he  chooses,  may  live  in  the  dwelling 
or  cultivate  the  farm,  and  it  is  entirely  optional  with 
him  whether  or  not  he  permits  the  estate  to  lapse 
by  failure  to  pay  the  rent  or  to  renew  from  period 
to  period.  Because  the  lessee  has  an  option  to 
maintain  the  estate  or  to  terminate  it,  it  does  not 
follow  that  the  instrument  creating  the  estate  is  a 
mere  option.  He  has  a  legal  estate  less  than  a 
freehold  and,  like  all  estates  less  than  a  freehold, 
its  duration  is  limited. 

Again,  let  us  assume  that  A  gives  to  B  an  ease- 
ment or  right  of  way  across  his  property.  B  has 
acquired  nothing  but  the  option  to  enter  on  the 
property.  The  instrument  creating  this  option  pro- 
vides for  periodic  payments  for  the  exercise  of  the 
right,  and  it  contains  conditions,  the  breach  of 
which  will  effect  an  ipso  facto  forfeiture.  Never- 
theless, the  instrument  creates  an  estate  in  lands, 


14  INNOCENT  PURCHASER 

a  legal  estate,  and  the  fact  that  an  option  exists 
does  not  wipe  out  the  estate  which  is  created.  The 
character  of  the  instrument  or  the  existence  vel  non 
of  title  is  not  affected  by  the  optional  features. 

The  instrument  involved  in  the  Teel  case  is  sub- 
stantially identical  with  the  instrument  which  was 
considered  in  the  Daugherty  case,  except  upon  three 
material  points.  The  consideration  in  the  Teel 
case  was  only  one  dollar,  while  the  consideration  in 
the  Daugherty  case  was  a  substantial  one.  In  the 
Teel  case  the  lessee  was  given  the  right  to  postpone 
drilling  indefinitely  by  the  payment  of  rent.  In  the 
Daugherty  case  a  limit  of  three  years  was  fixed. 
In  the  Daugherty  case  it  was  recited  that  the  in- 
strument was  not  a  franchise  but  a  conveyance. 
No  such  recital  appeared  in  the  instrument  con- 
sidered in  the  Teel  case.  The  Supreme  Court  in 
the  Daugherty  case  held  that  there  was  a  sub- 
stantial difference  between  the  two  instruments 
and,  because  thereof,  the  Teel  case  was  properly 
decided. 

THE  DECISION  IN  THE  TEEL  CASE  WAS  AP- 
PROVED UPON  THE  THEORY  THAT  ONLY  A 
NOMINAL  (SHOULD  BE  DESIGNATED  FORMAL) 
CONSIDERATION  WAS  PAID,  AND  THE  REAL 
CONSIDERATION  WAS  DEVELOPMENT,  AND 
THE  INSTRUMENT  ON  ITS  FACE  DISCLOSED 
THESE  FACTS.  So  construed,  the  Teel  case  is  not 
at  variance  with  other  decisions. 

Let  us  develop  the  idea  a  little  further:  Teel, 
for  a  recited  consideration  of  one  dollar,  either 
conveyed  the  minerals  or  gave  to  the  grantee  the 
right  to  enter  and  develop.  The  lessee  was  not, 
however,  under  any  obligation  to  drill,  and  could 
postpone  operations  indefinitely  by  paying  a  small 
rental.  Even  considering  the  one  dollar  as  a 


OF  OIL  AND   GAS  LEASE  15 

valuable  consideration,  as  distinguished  from  a 
formal  consideration,  the  court  which  decided  the 
Teel  case,  as  well  as  the  court  which  decided  the 
Daugherty  case,  held  that  the  real  consideration 
for  the  execution  of  the  instrument  by  Teel  was 
development.  The  real  consideration  inducing  Teel 
to  execute  the  instrument  was  not  one  dollar  but 
development,  and  the  instrument  did  not  obligate 
the  grantee  to  develop,  and  he  could  not  be  forced 
to  do  so,  and  further,  the  term  of  the  lease  was 
indefinite.  So  construed,  it  was  proper  to  say  that 
the  grantee  had  a  mere  option.  The  opinion  by  the 
Court  of  Appeals  (67  S.  W.  545)  is  very  clear  on 
these  two  points.  Justice  James  says  the  real  con- 
sideration was  development  and  there  was  no  time 
limit  fixed  and  no  obligation  to  develop;  therefore, 
the  lessee  had  nothing  but  an  option  which  was  in- 
definite and  could  not  be  enforced  by  him  or  against 
him.  The  Supreme  Court  drew  the  same  con- 
clusions. 

Let  us  make  the  idea  more  clear:  If  A,  with- 
out consideration,  or  for  a  formal  consideration, 
often  called  nominal  consideration,  gives  to  B  the 
right  to  enter  and  drill,  with  the  obligation  to  pay 
royalty  in  the  event  of  the  exercise  of  the  right 
given,  then,  beyond  question,  B  has  nothing  but  a 
license  or  an  option  which  A  can  revoke  at  any 
time,  and  B  cannot  be  forced  to  develop,  and  the 
consideration  for  the  instrument  is  development. 
If  B  enters  and  drills  before  the  right  is  revoked, 
the  lack  of  consideration  is  removed  and  B  acquires 
an  estate  or  a  vested  right  which  continues  in  accor- 
dance with  the  terms  of  the  instrument.  On  the 
other  hand,  if  A,  for  a  valuable  consideration,  gives 
to  B  for  a  definite  time,  the  right  to  enter  and  de- 
velop, this  right  is  vested  upon  delivery  of  the  instru- 
ment, and  can  be  enforced  against  A  regardless  of 
the  fact  that  B  cannot  be  compelled  to  de- 


16  INNOCENT  PURCHASER 

velop.  If  B  exercises  the  right  to  develop, 
he  acquires  no  greater  estate  than  he  had 
before.  The  estate  which  exists  is  created 
by  the  instrument,  not  by  the  exercise  of  rights 
given  in  the  instrument.  Our  courts  have  repeated- 
ly upheld  instruments  based  upon  valuable  consider- 
ation, though  it  be  only  one  dollar,  and  where  a  time 
limit  is  fixed  within  which  the  lessee  must  drill  or 
forfeit.  Owen  v.  Corsicana  Pet.  Co.,  222  S.  W. 
(Sup.)  154;  Griffin  v.  Bell,  202  S.  W.  1034;  Ay- 
cock  v.  Reliance  Co.,  210  S.  W.  848;  Emde  v. 
Johnson,  214  S.  W.  575;  Hunter  v.  Gulf  Prod.  Co., 
210  S.  W.  163;  McKay  vs.  Talley,  220  S.  W.  167. 
See  also  Davis  v.  Texas  Co.,  232  S.  W.  549,  opinion 
by  Galveston  Court  of  Appeals  filed  March 
25,  1921,  dissenting  opinion  by  Special  Chief 
Justice  Sonfield,  filed  April  6,  1921.  And 
upon  what  theory?  It  is  upon  the  theory 
that  the  cash  consideration  is  the  real  con- 
sideration. In  these  cases  it  is  clearly  pointed  out 
that  development  is  not  the  real  consideration,  and 
the  lessee  cannot  be  forced  to  develop.  The  lease 
is  executed  upon  the  hope  that  the  lessee  will  de- 
velop, but  not  upon  the  consideration  that  he  must 
develop.  The  Teel  case  is,  therefore,  applicable 
only  to  those  instruments  where  the  real  considera- 
tion is  development,  and  where  development  cannot 
be  forced.  The  Austin  Court,  in  Burt  v.  Deorsam, 
227  S.  W.  354,  so  construes  the  Teel  case. 

IDEA  THAT  LEASE  IS  A  NON-NEGOTIABLE 

INSTRUMENT. 
In  the  Teel  case  it  was  said: 

"Furthermore,  the  instruments  being  mere- 
ly contracts  by  which  Nicholson  could  acquire 
an  interest  in  the  lands,  it  seems  to  us  they 
fall  within  the  rule  of  'written  instruments  not 
negotiable  by  law,'  with  reference  to  which 
article  309  of  our  Revised  Statutes  provides 


OF  OIL  AND  GAS  LEASE  17 

that  'The  assignee  of  any  instrument  mentioned 
in  the  preceeding  article  may  maintain  an  ac- 
tion thereon  in  his  own  name,  but  he  shall 
allow  every  discount  and  defense  against  the 
same  which  it  would  have  been  subject  to  in 
the  hands  of  any  previous  owner  before  notice 
of  the  assignment  was  given  to  the  defendant; 
and  in  order  to  hold  the  assignor  as  surety  for 
the  payment  of  the  instrument,  the  asignee 
shall  use  due  diligence  to  collect  the  same.' ' 

It  will  be  noticed  that  the  Court  does  not  hold 
that  Article  309,  which  is  Article  584  of  the  Re- 
vised Statutes  of  1911,  is  applicable.  It  is  only 
said  that  instruments  of  the  character  under  dis- 
cussion seem  to  be  governed  by  such  Article.  Title 
16  of  the  Revised  Statutes  deals  with  "Bills,  Notes, 
and  other  Written  Instruments,"  and  a  reading 
of  that  Title  clearly  shows  that  the  Legislature  was 
dealing  with  notes,  checks,  drafts,  bills  of  exchange, 
acceptances,  and  other  instruments  in  common  use 
in  the  business  world  as  evidence  of  debt,  or  with 
respect  to  liability  for  the  payment  of  money.  Arti- 
cle 583  of  the  Revised  Statutes  of  1911  (old  Article 
308)  simply  provides  that  any  instrument  not  nego- 
tiable by  the  law  merchant  may  be  assigned.  This 
is  followed  by  the  Article  quoted  above,  to  the 
effect  that  the  assignee  shall  allow  every  discount 
and  defense  which  it  would  have  been  subject  to 
in  the  hands  of  the  previous  owner  before  notice 
of  the  assignment  was  given  to  the  defendant. 

Except  for  the  suggestion  in  the  Teel  case,  that 
Article  584  was  applicable  to  an  oil  and  gas  lease 
to  the  extent  of  depriving  an  assignee  of  the  lease 
from  asserting  the  defense  of  innocent  purchaser, 
one  would  be  tempted  to  say  that  such  a  construc- 
tion of  the  Article  was  absurd.  Further,  if  the 
Article  is  broad  enough  to  cover  the  instrument  in- 
volved in  the  Teel  case,  it  is  not  belittling  the  Court 


18  INNOCENT  PURCHASER 

which  decided  that  case,  to  say  that  it  would  be 
wholly  unreasonable  to  apply  the  Article  to  the 
usual  oil  and  gas  lease,  which,  as  already  pointed 
out,  is  very  dissimilar  to  the  instrument  construed 
in  the  Teel  case. 

Article  584  provides  that  the  assignee  may 
maintain  an  action  in  his  own  name.  It  is  clear 
that  this  means  that  the  purchaser  of  an  evidence 
of  indebtedness,  other  than  a  note,  draft,  or  other 
negotiable  instrument,  may  bring  suit  for  the  debt 
in  his  own  name.  An  acceptance  is  an  instrument 
of  this  character,  or  a  note  expressly  made  non- 
negotiable.  It  is  provided  that  the  purchaser  "shall 
allow  every  discount  and  defense  against  the  same 
which  it  would  have  been  subject  to  in  the  hands 
of  any  previous  owner  before  notice  of  the  assign- 
ment was  given  to  the  defendant."  The  use  of  the 
word  "discount"  shows  clearly  that  the  Article 
deals  with  evidences  of  debt,  and  the  word  "de- 
fense" is  used  as  a  synonymous  term.  Necessarily, 
if  every  discount  must  be  allowed,  then  the  defend- 
ant, as  the  obligor,  can  defend  in  whole  or  in  part 
by  proving  a  discount  or  offset. 

The  Article  provides  that  the  purchaser  shall 
allow  every  discount  and  defense  existing  "before 
notice  of  the  assignment  was  given  to  the  defend- 
ant." Certainly,  notice  to  a  lessor  is  not  necess- 
ary, with  respect  to  the  assignment  of  a  lease,  and 
the  Article  plainly  is  dealing  with  obligations  to 
pay  money,  and  not  with  such  an  instrument  as  an 
oil  and  gas  lease. 

The  last  clause  of  the  Article  is:  "And  in  order 
to  hold  the  assignor  as  surety  for  the  payment  of 
the  instrument,  the  assignee  shall  use  due  diligence 
to  collect  the  same."  It  is  utterly  impossible  to 
apply  the  language  to  a  lease.  The  assignor  of  a 
lease  is  not  a  surety.  The  assignee  cannot  sue  the 


OF  OIL  AND  GAS  LEASE  19 

assignor  "for  the  payment  of  the  instrument,"  for 
a  lease  is  not  an  obligation  of  a  lessor  to  pay  money. 
And  how  could  an  assignee  use  due  diligence  to 
collect  a  lease,  and  thereby  conform  with  the  clause 
requiring  due  diligence  to  make  collection  before 
proceeding  against  the  asignor  as  a  surety? 

If  the  clause  quoted  in  the  preceeding  para- 
graph does  not  apply  to  an  oil  and  gas  lease,  then 
the  balance  of  the  Article  does  not  apply  to  an  oil 
and  gas  lease.  Indeed,  it  seems  so  obvious  that 
Article  584.  as  well  as  the  other  provisions  of  Title 
16,  apply  only  to  instruments  relating  to  the  pay- 
ment of  money,  instruments  evidencing  the  exist- 
ence of  a  debt,  and  not  to  instruments  dealing  with 
land,  as  agricultural  leases,  easements,  or  oil  and 
gas  leases,  that  a  discussion  of  the  matter  appears 
out  of  place  and  wholly  unnecessary. 

But  treating  the  usual  lease  as  similar  to  the 
instrument  construed  in  the  Teel  case,  and  assum- 
ing that  Article  584  is  applicable,  it  follows  that 
the  assignee  takes  subject  only  to  equities  or  de- 
fenses which  exist  in  favor  of  the  lessor,  and  he 
is  not  cut  off  from  asserting  defenses  as  against 
other  persons.  In  other  words,  even  if  it  be  ad- 
mitted that  Article  584  will  not  protect  an  assignee 
as  against  the  right  of  the  lessor  to  cancel  on  ac- 
count of  fraud  practiced  by  the  original  lessee,  the 
statute  does  not  cut  off  the  defense  of  innocent 
purchaser  as  protection  against  a  title  or  equity  in 
other  than  the  lessor.  Thus,  if  the  apparent  and 
record  owner  of  land  executes  a  lease,  the  lessee 
or  assignee,  as  bona  fide  purchaser,  is  not  deprived 
by  Article  584  from  defending  against  an  equity 
or  title  in  a  third  person. 

If  the  Teel  case  is  authority,  with  respect  to 
the  application  of  Article  584 — and  it  is  not  consider- 
ed to  be  such — it  must  be  remembered  that  such 


20  INNOCENT  PURCHASER 

case,  as  well  as,  the  statute,  deals  clearly  and  only  with 
"discounts  and  defenses"  existing  in  favor  of  the 
lessor. 

SUPREME  COURT  IGNORES  TEEL  CASE  AS 
BEING  APPLICABLE  TO  USUAL  LEASE. 

The  Texas  Supreme  Court  has  several  times 
indicated,  if  not  actually  expressed,  that  the  in- 
strument involved  in  the  Teel  case  was  unusual; 
therefore,  the  law  as  announced  in  the  Teel  case 
should  not  be  followed  except  under  almost  identi- 
cal facts.  Further,  if  the  Teel  case  holds  that 
nothing  but  an  option  is  created  by  the  ordinary 
lease,  and  the  defense  of  innocent  purchaser  should 
be  denied,  then  the  Teel  case  has  been  overruled. 

The  Teel  case  was  decided  June  16,  1902.  The 
same  court,  on  June  19,  1902, — a  span  of  three 
days — refused  writ  of  error  in  the  case  of  Southern 
Oil  Co.  vs.  Colquitt,  69  S.  W.  169.  Chief  Justice 
Phillips,  in  the  case  of  Texas-  Co.,  v.  Daugherty, 
107  Tex,  226,  says  that  the  refusal  of  the  writ  in  the 
Colquit  case  was  necessarily  upon  the  ground  that 
the  instrument  under  consideration  in  such  case  waa 
in  form  sufficient  to  convey  title  to  the  minerals 
in  place.  The  instrument  in  the  Teel  case  is  quite 
similar  to  the  instrument  construed  in  the  Colquitt 
case,  and  the  action  of  the  Court  in  refusing  the 
writ  of  error  in  the  Colquitt  case  can  be  reconciled 
with  the  decision  three  days  earlier  in  the  Teel 
case  solely  upon  the  ground  that  the  instrument  in 
the  Teel  case  showed  on  its  face,  and  it  was  a  fact, 
that  the  consideration  for  the  instrument  was  de- 
velopment, that  there  was  no  obligation  to  develop, 
the  term  was  indefinite,  and  therefore  title  to  the 
minerals  did  not  pass  and  the  instrument  did  not 
create  even  an  option  for  a  definite  time  or  upon 
consideration. 


OF  OIL  AND  GAS  LEASE  21 

If  the  decision  in  the  Teel  case  is  applicable  to 
the  ordinary  lease  for  a  definite  term  and  based 
upon  consideration  other  than  development,  or  up- 
on an  obligation  to  develop,  then  the  Teel  case 
would  have  been  cited  by  the  Supreme  Court  in  the 
case  of  Gilmore  vs.  O'Neil,  107  Tex.  18,  173  S.  W. 
203,  as  authority  disposing  of  the  issue  of  innocent 
purchaser  in  the  Gilmore  case.  The  latter  case 
will  be  discussed  fully  hereafter  in  connection  with 
the  decisions  in  Texas  and  other  jurisdictions  recog- 
nizing the  right  of  a  lessee  or  assignee  to  defend 
as  innocent  purchaser.  It  is  sufficient  to  say  that 
in  this  case  the  contest  was  between  O'Neil,  as  the 
owner  of  the  equitable  and  superior  title  to  a  tract 
of  one-third  of  an  acre,  and  Gilmore  and  Nicholson, 
as-  the  assignees  of  the  lease  taken  from  the  apparent 
record  owners  of  the  tract.  It  was  clearly  shown 
that  O'Neil  had  the  superior  title,  though  only  an 
equitable  title,  and  the  adverse  claimants  held  by 
assignment  a  mineral  lease  taken  from  the  apparent 
or  record  owners  of  the  property.  The  question 
was  whether  Gilmore  and  Nicholson,  assignees  of 
the  lease,  were  protected  as  innocent  purchasers 
against  the  superior  equitable  title  of  O'Neil. 

It  is  obvious  that,  if  the  lease  created  no  estate, 
but  simply  an  option,  then  the  Teel  case  was  ap- 
plicable, and  Gilmore  and  Nicholson  should  have 
been  denied  the  defense  of  innocent  purchaser. 
The  Supreme  Court,  opinion  by  Chief  Justice  Phillips, 
held  that  Gilmore  and  Nicholson,  as  assignees  of  the 
lease,  had  a  legal  estate  and  title  and  would  be 
protected  against  the  superior  title  of  O'Neil,  if  the 
proof  showed  that  they  were  bona  fide  purchasers 
for  value  without  notice,  of  if  their  assignors  were 
bona  fide  purchasers  etc.  The  title  of  O'Neil  was 
upheld,  however,  because  it  was  clearly  proved 
that  there  were  instruments  of  record  giving  notice, 
not  only  to  the  original  lessees,  but  to  Gilmore  and 


22  INNOCENT  PURCHASER 

Nicholson  as  assignees,  and  which  disclosed  the 
claim  and  superior  title  of  O'Neil.  In  other  words, 
the  assignees  of  the  lease  were  not  protected  be- 
cause they  had  constructive  notice  of  the  title  of 
O'Neil. 

The  Teel  case  was  not  even  cited  by  Chief  Jus- 
tice Phillips.  Clearly,  he  did  not  consider  it  to  be 
in  point  or  even  appear  to  be  applicable,  for  other- 
wise he  would  have  discussed  the  case  and  dis- 
tinguished it.  The  Teel  case  was  not  applicable 
because  Gilmore  and  Nicholson  held  under  a  lease 
for  a  definite  term  and  based  upon  consideration 
other  than  development,  as  well  as  upon  an  ex- 
press obligation  to  drill  within  a  definite  time.  The 
decision  in  the  Gilmore  case  has  never  been  over- 
ruled or  modified  by  the  Supreme  Court,  and  it 
clearly  establishes  these  points: 

(1)  One    who    takes    a    mineral    lease    in    the 
usual  form,  based  upon  consideration  and  for  a  de- 
finite  term,    from    the    record    owner,    acquires    a 
legal  estate  or  title. 

(2)  Such  lessee  or  any  assignee  may  defend  as 
innocent  purchaser  in  similar  manner  as  if  holding 
under  a  deed. 

(3)  If  the  Teel  case  holds  to  the  contrary,  it 
was  overruled. 

WHAT   IS    NOMINAL    CONSIDERATION? 

In  the  Teel  case,  as  well  as  in  many  other  cases, 
the  term  "nominal  consideration"  is  used  when  re- 
ferring to  a  small  sum,  recited  as  being  the  con- 
sideration for  the  lease.  A  brief  discussion  of  the 
matter  is  appropriate. 

As  the  term  implies,  nominal  consideration  is 
one  in  name  only,  and  is  now  often  used  as  the 
opposite  of  real  consideration  or  valuable  con- 


OF  OIL  AND  GAS  LEASE  23 

sideration.  It  is  believed  that  in  most  instances 
where  the  term  is  used  it  would  be  more  accurate 
to  say  "formal"  consideration.  A  formal  con- 
sideration is  such  as  is  recited  and  paid,  in  de- 
ference to  the  belief  that  every  contract,  to  be  in 
good  form,  should  recite  consideration,  no  matter 
how  small,  and  the  sum  recited  should  also  be  paid 
in  accordance  with  custom.  The  parties  do  not 
pay  or  receive  this  formal  consideration  with  any 
idea  that  it  is  true  consideration  for  the  contract  or 
even  a  part  of  it.  As  Mr.  Page,  in  his  work  on 
Contracts,  says:  "It  is  not  a  real  part  of  the  tran- 
saction, but  a  mere  form,  to  comply  with  the  ex- 
ternal requirements  of  the  law."  A  formal  con- 
sideration may  be  said  to  be  no  consideration. 

A  contract,  a  lease,  or  a  deed,  is  binding  if 
based  upon  consideration  either  good  or  valuable. 
Eliminating  any  discussion  of  good  consideration, 
the  question  arises:  What  is  a  valuable  considera- 
tion? It  is  elementary  that  the  consideration 
need  not  be  adequate ;  it  need  only  be  something 
valuable.  If  a  man  conveys  for  one  hundred  dol- 
lars property  worth  ten  thousand  dollars,  he  can- 
not rescind  simply  upon  the  ground  that  the  con- 
sideration was  inadequate.  The  courts  do  not  under- 
take to  make  better  bargains  than  the  parties  have 
made. 

In  Texas,  as  well  as  in  most  states,  it  is  held 
that  one  dollar  is  a  valuable  consideration,  not  a 
nominal  or  formal  consideration,  and  will  support 
a  deed  to  minerals  or  a  mineral  lease.  Among  the 
numerous  cases  are: 

Hunter  v.  Gulf  Prod.  Co.,  210  S.  W.  163; 
McKay  v.  Talley,  220  S.  W.  167; 
Rich  v.  Doneghey,  177  Pac.  86; 
Smith  v.  Guffey,  237  U.  S.  101; 
Poe  v.  Ulrey,  84  N.  E.  46; 


24  INNOCENT  PURCHASER 

Lowther  v.  Guffey,  43  S.  E.  923. 

The  case  of  McKay  v.  Talley,  by  the  Amarillo 
Court,  discusses  fully  the  misconception  as  to  no- 
minal consideration.  See  also  Page  on  "Law  of 
Contracts",  Vol.  1,  Section  644  et  seq. 

In  most  instances,  where  a  small  consideration 
is  paid  for  a  mineral  lease,  as  one  dollar  or  ten 
dollars,  it  is  a  fact  that  this  bonus  money,  as  it  is 
usually  called,  is  treated  by  the  parties  as  real  con- 
sideration and  as  being  entirely  adequate  for  the 
rights  obtained  by  the  lessee.  It  must  be  remem- 
bered that  under  the  ordinary  lease  the  lessee  gets 
nothing  but  the  right  to  drill,  and  if  he  fails  to 
drill  within  a  year,  he  must  pay  an  additional  sum 
or  permit  the  lease  to  lapse.  If,  during  the  term 
of  the  lease,  the  lessee  drills  and  obtains  oil  or 
gas  in  paying  quantities,  the  lessor  gets  a  one- 
eighth  part  thereof,  and  in  a  way  it  may  be  said 
that  additional  consideration  is  paid  to  him.  If  a 
dry  hole  results,  the  lessee  has  paid  his  bonus 
money,  and  the  expenses  of  drilling,  and  he  gets 
nothing  whatever  in  return.  The  lessor,  on  the 
other  hand,  gets  the  bonus  money,  the  commutation 
money,  and  he  gives  nothing  of  value  in  return,  in 
as  much  as  no  minerals  were  found.  If  the  lessee 
permits  the  lease  to  lapse  without  drilling,  the  les- 
sor gets  the  bonus  money,  whatever  commutation 
money  is  paid,  and  the  oil  or  gas  is  still  under  his 
land,  if  it  was  ever  there. 

The  point  to  be  made  is  that,  no  matter  how 
small  the  bonus  payment  may  be,  it  is  valuable  and 
usually  adequate  consideration,  for  the  right  to 
enter  and  develop  is  actually  worthless  if  no  miner- 
als are  under  the  land;  but  on  the  other  hand,  if 
minerals  are  under  the  land  then  the  lessor,  in 
addition  to  the  bonus  money  and  commutation 
money,  receives  his  one-eighth  of  the  minerals 


OF  OIL  AND  GAS  LEASE  25 

whenever  they  are  removed,  and  the  lessee  must 
stand  all  the  expense  of  removal.  In  other  words, 
neither  the  lessor  nor  the  lessee  knows  whether 
or  not  any  minerals  are  under  the  land,  and  both 
know  that  the  only  certain  way  to  find  out  is  by 
drilling  a  well  at  great  expense,  and  therefore  a 
lessee  is  unwilling  to  pay  more  than  a  small  con- 
sideration for  a  right  which  requires  a  large  invest- 
ment to  determine  whether  or  not  that  right  is  of 
any  value.  A  different  situation  arises  when  the 
parties  are  dealing  with  property  known  to  exist  or 
with  rights  of  known  value.  One  can  readily 
see  that  a  man  would  be  foolish  to  sell  a  farm  of 
one  hundred  and  sixty  acres  for  fifteen  dollars,  for 
the  grantor  knows  that  he  is  selling  something  of 
much  greater  value  than  fifteen  dollars.  On  the 
other  hand,  it  cannot  be  said  that  the  land  owner 
would  be  foolish  to  give  a  mineral  lease  on  the 
farm  for  fifteen  dollars,  or  even  one  dollar,  because 
there  may  be  no  minerals  under  the  land,  and 
the  lessee  may  be  put  to  a  cost  of  twenty-five  thous- 
and dollars  or  more  to  ascertain  whether  or  not  it 
was  worthless. 

It  is  also  true  that  in  most  instances  where  from 
one  dollar  to  twenty-five  dollars  is  paid  to  a  land- 
owner for  a  lease,  it  is  the  market  value  of  the 
lease,  and  the  lessor  gets  as  much  as  anyone  else 
would  pay  him.  It  is  common  knowledge  that 
leases  for  a  small  cash  bonus  and  with  no  obligation 
to  drill  are  secured  only  in  wildcat  territory,  and  the 
consideration  paid,  whether  one  or  ten  dollars,  is 
all  the  lessor  can  get  at  the  time.  If  the  prevailing 
bonus  in  the  vicinity  is  one  dollar,  the  lessee  re- 
fuses to  pay  two  or  five  dollars,  because  he  can  go 
next  door  or  across  the  road  and  secure  a  lease 
on  just  as  good  a  tract  for  one  dollar.  The  bonus 
money  is,  therefore,  not  only  the  real  consideration 


26  INNOCENT  PURCHASER 

for  the  lease,   but  it  is  adequate  and  the  market 
price  for  the  lease  at  the  time. 

If  the  question  of  adequacy  is  to  be  considered, 
what  rule  can  be  applied?  If  one  dollar  is  a  nomi- 
nal consideration,  what  is  to  be  said  of  five  dollars? 
When  do  you  pass  from  nominal  to  valuable  con- 
sideration? Infinite  perplexities  result  from  any 
effort  to  determine  whether  or  not  consideration  is 
adequate,  and  this  is  the  reason  for  the  rule  which 
is  now  firmly  established,  that  one  dollar  or  more 
is  a  valuable  consideration  and  cannot  be  considered 
as  a  formal  or  nominal  consideration. 

THEORY  THAT  TITLE  IS  INCHOATE. 

Taking  up  the  next  error  into  which  our  courts 
have  fallen,  it  is  disclosed  that  the  courts  are  in 
•the  habit  of  saying  that,  under  the  ordinary  mineral 
lease,  the  rights  or  titles  of  the  lessee  are  inchoate, 
but  become  vested  as  soon  as  oil  or  gas  is  discov- 
ered. In  most  instances  where  this  expression  is 
used  it  is  wholly  inappropriate,  if  not  absolutely 
meaningless.  Its  origin  is  as  follows:  As  already 
pointed  out,  in  many  jurisdictions  it  is  held  that 
the  title  to  oil  or  gas  in  place  cannot  be  conveyed, 
irrespective  of  the  form  of  the  instrument,  and  be- 
cause oil  and  gas  are  not  susceptible  of  ownership 
separate  and  apart  from  the  land  until  such  miner- 
als are  reduced  to  possession  by  bringing  them 
to  the  surface.  In  view  of  this  theory,  it  was 
proper  for  the  courts  to  hold  that  even  a  deed  to 
oil  and  gas  in  place  conveyed  no  title,  but  created 
only  a  right  to  prospect,  or  an  inchoate  title  to  the 
minerals  which  would  ripen  into  a  real  title  after 
the  mineral  was  brought  to  the  surface.  In  other 
words,  the  conveyance  would  take  effect  and  title 
would  pass  whenever  the  mineral  was  reduced  to 
possession.  These  decisions  are  correct  but  have 
been  misunderstood  and  therefore  misapplied. 


OF  OIL  AND   GAS  LEASE  27 

If  A  should  undertake  to  convey  to  B  all  the 
birds  and  wild  beasts  upon  his  land,  B  would  not, 
by  the  mere  delivery  of  the  instrument,  get  any  title 
to  the  birds  or  beasts,  or  rather  the  title  would 
be  inchoate;  but  whenever  B  reduces  to  possession 
any  bird  or  beast  on  the  land,  then  clearly  B  would 
be  vested  with  title  to  the  bird  or  beast,  and  would 
own  the  fowl  or  animal  as  grantee  under  the  in- 
strument. It  appears  with  equal  clearness  that, 
while  B  had  no  title  until  he  captured  the.  bird  or 
beast,  he  did  have,  at  the  very  moment  the  instru- 
ment was  executed,  a  vested  right  to  reduce  to 
possession  any  bird  or  wild  beast  found  upon  the 
land.  When  considered  in  this  light,  the  early 
cases,  which  were  that  the  lessee  has  only  an  in- 
choate title,  were  correctly  decided,  for  they  simply 
held  that  the  title  to  the  minerals  was  inchoate. 

In  later  decisions  the  courts  failed  to  see  the 
real  question  which  was  under  discussion  in  the 
earlier  cases,  and  the  expression  that  "title  is  in- 
choate until  production  is  obtained"  is  applied  to 
the  character  of  the  right  or  estate  that  is  created 
by  the  instrument.  It  seems  too  clear  for  argument 
that  the  lessee,  upon  the  delivery  of  the  lease,  ac- 
quires the  right  to  enter  on  the  property  to  drill 
and  to  appropriate  the  greater  portion  of  the  min- 
eral which  may  be  discovered,  and  that  this  right 
vests  absolutely  upon  the  delivery  of  the  instru- 
ment. It  is  not  inchoate  at  all,  it  is  not  incipient  or 
embryonic;  it  is  not  suspended  in  mid-air,  waiting 
for  the  discovery  of  oil  or  gas  before  it  descends 
and  vests  in  the  lessee.  In  those  jurisdictions 
where  it  is  held  to  be  impossible  to  convey  title 
to  oil  or  gas  in  place,  and  in  those  instances  where 
the  "lease,  demise  and  let"  form  is  used,  it  is  quite 
true  that  the  lessee**  title  to  the  oil  or  gas  is  in- 
choate, and  does  not  vest  until  the  oil  or  gas  is  re- 
duced to  possession,  but  it  is  also  true  that  the 


28  INNOCENT  PURCHASER 

right  to  enter  and  develop,  the  right  to  reduce  the 
oil  or  gas  to  possession  and  to  dispose  of  it,  does 
vest  upon  delivery  of  the  instrument,  and  this  right 
is  exclusive. 

A  very  clear  discussion  of  the  principles  which 
are  announced  above  may  be  found  in  Lindlay  v. 
Eaydure,  239  Fed.  928,  opinion  by  Judge  Cochran, 
written  in  1917.  After  stating  the  contention  of  the 
parties,  especially  with  respect  to  the  effect  of  a 
surrender  clause  in  the  lease,  Judge  Cochran  says 
that,  before  considering  the  issues,  there  are  other 
questions  to  be  disposed  of.  He  then  says: 

"The  matter  relating  thereto  which  I  would 
develop  is  as  to  whether,  immediately  upon  the 
execution  of  such  an  instrument,  an  estate  of 
any  character  vests  in  the  lessee.  It  is  cer- 
tain that  none  vests  in  him  as  to  the  oil  and 
gas  which  may  be  in  the  land  notwithstanding 
the  instrument  in  express  terms  purports  to 
grant  and  convey  them.  This  follows  from  the 
consideration  that  the  lessor  himself  has  no 
estate  therein;  and  this  is  so  because  of  the 
fugacious  nature  of  such  substances.  That  he 
has  no  estate  therein  is  thus  put  by  the  Su- 
preme Court,  through  Mr.  Justice  White,  in  the 
case  of  Ohio  Oil  Co.  v.  Indiana,  177  U.  S.  190 
208,  20  Sup.  Ct.  576,  583  (44  L.  Ed.  729) : 

'Although  in  virtue  of  his  proprietorship 
the  owner  of  the  surface  may  bore  wells  for  the 
purpose  of  extracting  natural  gas  and  oil,  un- 
til these  substances  are  actually  reduced  by 
him  to  possession,  he  has  no  title  whatever  to 
them  as  owner;  that  is,  he  has  the  exclusive 
right  on  his  own  land  to  seek  to  acquire  them, 
but  they  do  not  become  his  property  until  the 
effort  has  resulted  in  dominion  and  control  by 
actual  possession.' 


OF  OIL  AND   GAS  LEASE  29 

It  is  equally  certain  that  an  estate  of  some 
character  does  then  vest  in  him  in  the  surface; 
i.  e.,  the  rest  of  the  land.  The  owner  thereof 
by  virtue  of  his  proprietorship,  as  so  stated,  has 
the  exclusive  right  thereon  to  seek  to  acquire 
such  substances.  This  right  may  be  resolved 
into  two  successive  rights;  i.  e.,  to  explore 
therefor  by  drilling  wells,  and  then,  if  discover- 
ed, to  produce  them.  It  is  on  their  production 
that  they  become  his.  Having  such  right,  he 
can  transfer  it,  and  immediately  upon  the  exe- 
cution of  the  transfer  an  estate  in  the  land 
vests  in  the  person  to  whom  it  is  made,  at 
least  so  far  as  the  right  to  explore  is  concerned. 
Such  a  transfer  is  effected  by  such  an  instru- 
ment as  I  am  dealing  with.  It  in  express  terms 
demises,  leases,  and  lets  the  land  for  the  pur- 
pose and  with  the  exclusive  right  to  drill  wells 
and  to  produce  oil  and  gas.  In  Archer's  Oil 
&  Gas  Cases,  p.  20,  this  proposition  is  stated 
as  a  true  generalization  ol  numerous  cases 
cited,  to-wit : 

'A  grant  of  the  exclusive  privilege  to  go  on 
land  for  the  purpose  of  prospecting  for  oil  and 
gas  is,  until  oil  or  gas  is  discovered  in  paying 
quantities,  merely  a  license,  and  does  not  vest 
in  the  grantee  any  estate  in  the  surface  of  the 
land  or  the  minerals  therein;  but  where  by 
such  a  grant  the  land  is  granted  with  such 
exclusive  privilege,  it  is  a  lease  conveying  an 
interest  in  the  land,  and  not  merely  a  license 
to  enter  and  explore  for  oil  or  gas.' 

The  appellate  court  of  the  circuit,  through 
Judge  Day,  in  the  case  of  Allegheny  Oil  Co.  v. 
Snyder,  106  Fed.  764,  766,  45  C.  C.  A.  604, 
which  involved  a  lease  which  granted  and  de- 
mised land  for  such  purposes  and  with  such 
exclusive  right  for  the  term  of  2  years  and  as 


30  INNOCENT  PURCHASER 

long  thereafter  as  oil  or  gas  were  found  in 
paying  quantities,  not  exceeding  in  the  whole 
25  years,  quoted  with  approval  from  the  opin- 
ion in  the  case  of  Harris  v.  Oil  Co.,  57  Ohio 
St.  129,  48  N.  E.  506,  this  statement: 

'An  instrument  in  such  form  is  more  than 
a  mere  license ;  it  is  a  lease  of  the  land  for  the 
purpose  and  period  limited  therein,  and  the 
lessee  has  a  vested  right  to  the  possession  of 
the  land  to  the  extent  reasonably  necessary  to 
perform  the  terms  of  the  instrument  on  his 
part.' 

That  an  estate  in  the  surface  of  the  land 
of  some  character  vests  in  the  lessee  immediate- 
ly upon  the  execution  of  the  instrument  I  do 
not  understand  to  be  questioned  anywhere. 
Possibly  there  is  some  question  as  to  the  exact 
nature  of  the  estate  which  vests;  but  other- 
wise there  is  none.  On  the  face  of  things  it 
would  seem  that  at  least  an  estate  in  possession 
vests,  i.  e.,  an  estate  for  10  years  in  which  to 
explore  for  oil  and  gas — but  that  no  estate  to 
produce  oil  and  gas  then  vests.  So  far  the 
estate  is  an  estate  upon  condition  precedent, 
the  condition  being  the  discovery  of  oil  or  gas, 
and  does  not  vest  until  the  happening  of  such 
condition.  The  estate  in  possession  can,  in  no 
event,  last  longer  than  10  years.  In  the  case 
of  Brown  v.  Fowler,  65  Ohio  St.  507,  N.  E. 
76,  where  the  lease  was  for  2  years  and  as 
long  thereafter  as  oil  or  gas  is  found  in  paying 
quantities,  the  Supreme  Court  of  Ohio,  through 
Judge  Burket,  said: 

'This  clause  means  that  the  term  of  the 
lease  is  limited  to  2  years,  but  that  if,  within 
the  2  years,  oil  and  gas  shall  be  found,  then 
the  lease  shall  run  as  much  longer  thereafter 


OF  OIL  AND  GAS  LEASE  31 

as  oil  and  gas  shall  be  found  in  paying  quan- 
tities ;  but,  if  no  oil  or  gas  shall  be  found  with- 
in the  2  years,  the  lease  shall,  at  the  end  of 
the  2  years,  terminate,  not  by  forfeiture,  but 
by  expiration  of  term,  and  after  the  expiration 
of  the  said  2  years  no  further  drilling  can  be 
done  under  the  lease.' ' 

Judge  Cochran  discusses  certain  possibilities  in 
connection  with  the  duration  of  the  estate  and  then 
continues : 

"The  necessities  of  this  case  do  not  require 
that  anything  further  be  said  as  to  any  of 
these  possibilities.  It  is  sufficient  for  the  pur- 
pose thereof  that  an  estate  in  possession  to 
explore  for  oil  and  gas  does  vest  immediately 
upon  the  execution  of  the  instrument,  and  that 
an  estate  in  the  future  to  produce  oil  and 
gas  will  vest  on  its  discovery,  whatever  limita- 
tions or  qualifications  either  may  be  subject 
to.  In  the  case  of  Venture  Oil  Co.  v.  Fretts, 
152  Pa.  451,  25  Atl.  732,  the  Supreme  Court 
of  Pennsylvania,  through  Judge  Williams,  said : 

'A  vested  title  cannot  ordinarily  be  lost  by 
abandonment  in  a  less  time  than  that  fixed 
by  the  statute  of  limitations,  unless  there  is 
satisfactory  proof  of  an  intention  to  abandon. 
An  oil  lease  stands  on  quite  different  ground. 
The  title  is  inchoate,  and  for  purposes  of  ex- 
ploration only,  until  oil  is  found.  If  it  is  not 
found,  no  estate  vests  in  the  lessee,  and  his 
title,  whatever  it  is,  ends  when  the  unsuccess- 
ful search  is  abandoned.  If  oil  is  found,  then 
the  right  to  produce  becomes  a  vested  right, 
and  the  lessee  will  be  protected  in  exercising 
it  in  accordance  with  the  terms  and  conditions 
of  his  contract.' 


32  INNOCENT  PURCHASER 

/ 

Substantially  similar  statements  will  be 
found  in  other  cases  involving  oil  and  gas 
leases.  It  may  create  the  impression  that  there 
is  nothing  vested  until  oil  or  gas  is  found. 
Such,  however,  is  not  the  case,  and  no  such 
thought  was  intended  to  be  conveyed.  What 
is  inchoate  until  oil  or  gas  is  found  is  the  right 
to  produce  oil  and  gas  and  the  right  to  the  oil 
and  gas  itself,  which  remains  inchoate  until 
produced.  The  right  to  explore,  therefore,, 
is  at  no  time  inchoate.  It  is  vested,  and  will 
be  protected  from  the  time  of  the  execution  of 
the  instrument." 

Judge  Cochran  suggests  the  idea  of  two  estates: 
First,  the  right  to  enter  and  develop  during  the 
definite  period  fixed;  Second,  the  right  to  keep  the 
lease  in  force,  even  beyond  the  definite  period,  by 
maintaining  production  in  paying  quantities.  After 
all,  the  right  to  keep  the  lease  in  force  as  long  as 
any  mineral  is  produced  in  paying  quantities  vests 
upon  delivery  of  the  instrument  just  as  much  so 
as  the  right  to  enter  and  develop. 

VARIOUS  NAMES  APPLIED  TO  LEASES. 

Let  us  now  try  to  ascertain  the  exact  nature  and 
name  of  the  right  which  the  lessee  has  to  enter  on 
the  property  and  develop  the  minerals.  The  courts 
have  applied  various  names  to  the  instruments  or 
to  the  rights  or  estates  created. 

LEASE. 

The  instrument  is  generally  termed  a  lease,  and 
the  right  a  leasehold,  but  technically  this  is  in- 
correct, as  the  relation  of  landowner  and  tenant 
does  not  exist,  for  the  lessee,  so-called,  has  the 
right  to  take  away  and  dispose  of  a  part  of  the 
land  itself,  the  right  to  deplete  entirely  the  mineral 
deposit,  and  no  such  right  exists  under  a  pure 


OF  OIL  AND  GAS  LEASE  33 

leasehold  estate  unless  there  is  a  provision  reliev- 
ing lessee  from  liability  for  waste  with  respect  to 
the  minerals.  The  term  "lease"  is  often  used  to 
distinguish  an  estate  or  right  of  greater  dignity 
than  that  created  by  a  pure  license,  and  the  term 
"lease"  will  be  further  discussed  in  connection  with 
the  term  "license." 

FRANCHISE. 

The  expression  "franchise"  is  often  used.  This 
clearly  is  an  erroneous  designation,  because  a  fran- 
chise is  a  right  or  privilege  granted  by  the  Govern- 
ment, or  by  Governmental  authority,  and  it  does 
not  apply  to  rights  or  estates  as  between  individuals. 

INCORPOREAL  HEREDITAMENT. 

Sometimes  the  term  "incorporeal  hereditament" 
is  used,  which  is  to  say  that  the  right  or  estate  can- 
not be  perceived  by  the  senses;  cannot  be  seen  or 
touched,  and  it  is  an  estate  or  right  which  can  be 
inherited  and  is  not  personal  to  the  beneficiary 
thereof.  An  incorporeal  hereditament  is  an  inter- 
est or  an  estate  in  land,  as  will  be  shown  later. 

CHATTEL  REAL. 

Very  often  the  courts  say  that  the  right  or 
estate  is  a  chattel  real.  This  simply  means  that 
the  right  or  estate  is  not  freehold,  but  has  to  do 
with  real  property.  The  term,  therefore,  is  a  very 
broad  one  and  applies  to  any  interest  in  land  less 
than  a  fee,  and  where  no  title  passes  to  corporeal 
property. 

A  MERE  OPTION. 

Very  often  the  courts,  particularly  in  Texas,  say 
that  the  instrument  creates  a  mere  option,  as  dis- 
tinguishd  from  any  present  vested  interest  in  land. 
The  outstanding  decisions  are: 


84  INNOCENT  PURCHASER 

Hitson  vs.  Oilman,  220  S.  W.  140. 
Aurelius  vs.  Stewart,  219  S.  W.  863. 

To  a  limited  extent,  the  instrument  does  create 
an  option,  but,  as  discussed  above,  the  option  arises 
from  the  nature  and  character  of  the  estate  created, 
&nd  is  merely  an  incident  to  the  estate  and,  though 
an  option  exists,  it  does  not  follow  that  an  estate 
does  not  also  exist. 

LICENSE. 

Frequently  it  is  said  that  a  license  is  created. 
In  a  way,  the  right  to  enter  and  develop  is  a  license, 
but  the  technical  meaning  of  a  license,  as  applied 
to  minerals,  is  simply  a  right  given  by  parol  to  go 
upon  the  land  of  another  and  remove  the  minerals. 
This  right  is  not  exclusive,  it  may  be  terminated  at 
any  time  by  the  landowner,  and  no  estate  is  created. 

LICENSE  COUPLED  WITH  AN  INTEREST. 

If  the  license  is  created  by  an  instrument  in 
writing,  with  a  definite  time  limit,  or  in  perpetuity, 
and  the  right  is  exclusive  in  the  licensee,  even  as 
against  the  landowner,  then  this  license  becomes 
a  "license  coupled  with  an  interest,"  and  further, 
an  estate  in  lands  exists,  and  may  be  enjoyed 
throughout  the  term.  To  distinguish  an  estate 
created  by  such  an  instrument  from  that  existing 
under  a  pure  license,  the  earlier  decisions  use  the 
term  "lease."  See  extended  note  in  26  L.  R.  A.  (N.  S.) 
614.  A  "lease"  and  a  "license  coupled  with  on  inter- 
est" are,  therefore,  the  same  thing  and  refer  to  the 
same  character  of  instrument  and  estate.  A  li- 
cense coupled  with  an  interest  is  also  a  chattel  real 
and  likewise  a  profit  a  prendre,  and  likewise  an  in- 
corporeal hereditament.  The  phrase  "license  cou- 
pled with  an  interest"  is  not  a  common  law  term 
but  is  of  recent  origin.  Funk  v.  Haldeman,  53 


OF  OIL  AND  GAS  LEASE  35 

Pa.  St.  229 ;  Brown  v.  Beecher,  15  Atl.  608 ;  Heller 
v.  Dailey,  63  N.  E.  (Ind.)  490.  The  expression 
seems  to  have  been  first  used  by  the  Pennsylvania 
Court  in  the  Funk-Haldeman  case. 

THE  TRUE  DESIGNATION  OF  THE  RIGHT 
CREATED  BY  THE  ORDINARY  MINERAL  LEASE 
IS  "PROFIT  A  PRENDRE,"  AND  IT  IS  AN  ES- 
TATE IN  LAND. 

In  Blackstone,  Book  2,  page  32,  we  find: 

"Common,  or  right  of  common,  appears 
from  its  very  designation  to  be  an  incorporeal 
hereditament;  being  a  profit  which  a  man 
hath  in  the  land  of  another;  as  to  feed  his 
beasts,  to  catch  fish,  to  dig  turf,  to  cut  wood,  or 
the  like.  And  hence,  common  is  chiefly  of 
four  sorts:  Common  of  pasture,  of  piscary,  of 
turbary,  and  of  estovers." 

Discussing  the  common  of  turbary,  Blackstone 
says,  Book  2,  page  34: 

"Common  of  turbary  is  the  liberty  of  taking 
turf  from  another's  ground.  THERE  IS  ALSO 
A  COMMON  OF  DIGGING  FOR  COALS,  MIN- 
ERALS, STONES,  AND  THE  LIKE.  All  these 
bear  a  resemblance  to  common  of  pasture  in 
many  respects,  although  in  one  point  they  go 
much  farther ;  common  of  pasture  being  only  a 
right  of  feeding  on  the  herbage  and  vesture  of 
the  soil,  which  renews  annually;  but  common 
of  turbary  and  those  AFTER  MENTIONED  are 
a  right  of  carrying  away  THE  VERY  SOIL  IT- 
SELF." 

The  English  publication,  "Laws  of  England," 
edited  by  Lord  Halsbury,  is  quite  similar  to  our 
Corpus  Juris.  In  Volume  XI,  page  336  et  seq,  un- 
der the  title  "Profits  &  Prendre,"  it  is  said : 


16  INNOCENT  PURCHASER 

"A  profit  a  prendre  is  a  right  to  take 
something  off  the  land  of  another  person.  It 
may  be  more  fully  denned  as  a  right  to  enter 
the  land  of  another  person  and  to  take  some 
profit  of  the  soil,  or  a  portion  of  the  soil  itself, 
for  the  use  of  the  owner  of  the  right. 

The  subject  matter  of  a  profit  a    prendre, 

i.  e.,  the  substance  which  the  owner  of  the 
right  is  by  virtue  of  the  right  entitled  to  take, 
may  consist  of  *  *  *  any  part  of  the  soil  itself, 
including  mineral  accretions  to  the  soil  by 
natural  forces.  *  *  *  The  right  constituting 
the  profit  a'  prendre  may  be  exercised  to  the 
exclusion  of  all  other  persons,  in  which  case 
it  is  said  to  be  a  right  in  severalty  or  a  several 
profit  a  prendre;  or  it  may  be  exercisable  in 
common  with  one  or  more  persons,  including 
the  owner  of  the  land.  In  the  latter  case  it  is 
called  a  profit  a  prendre  in  common,  or  more 
usually  a  right  of  common. 

A  profit  a  prendre  may  be  created  for  an 
estate  in  perpetuity  analogous  to  an  estate  in 
fee  simple,  or  for  any  less  period  or  interest 
such  as  a  term  of  years,  and  is  a  tenement  in 
the  strict  legal  sense  of  that  term. 

A  profit  a  prendre  is  an  interest  in  land, 
and  for  this  reason  falls  within  the  provisions 
of  the  statute  of  frauds. 

Profits  a  prendre,  though  sometimes  called 
licenses,  must  be  carefully  distinguished  from 
mere  licenses  which  are  not  tenements,  and 
do  not  pass  any  interest  or  alter  or  transfer 
property  in  anything,  but  merely  make  an  act 
lawful  which  otherwise  would  have  been  un- 
lawful. A  license  is  not  transferable,  nor  can 
it  be  perpetual;  it  is  not  binding  on  the  tene- 
ment affected,  but  is  a  personal  matter  be- 


OF  OIL  AND  GAS  LEASE  ST 

tween  the  licensor  and  the  licensee.  It  is  al- 
ways revocable  and  merely  excuses  a  trespass 
until  it  is  revoked.  A  profit  a  prendre  when 
granted  is  never  revocable  at  the  will  of  the 
grantor,  but  subsists  throughout  the  currency 
of  the  estate  of  interest  for  which  it  is  created. 

A  profit  a  prendre  appurtenant  or  in  gross, 
whether  to  be  enjoyed  in  common  or  in  several- 
ty,  may  be  created  by  express  grant.  Profit* 
a  prendre  cannot  be  created  at  common  law 
except  by  deed,  and  are  therefore  said  to  lie 
in  grant  and  not  in  livery  and  to  pass  by  mere 
delivery  of  the  deed.  No  estate  or  interest, 
whether  in  fee  simple,  for  life,  for  a  term  of 
years,  or  even  for  a  single  hour,  can  be  created 
otherwise  than  by  a  deed,  with  the  exception 
of  two  cases"  not  necessary  to  mention,  as  not 
being  applicable. 

In  19  Corpus  Juris  870,  9  Ruling  Case  Law  744, 
and  Jones  on  Easements,  Sec.  49  et  seq.,  the  text  is 
substantially  the  same  as  that  quoted  from  the 
English  publication,  and  many  cases,  both  American 
and  English,  are  cited  in  support.  All  the  authori- 
ties are  in  accord  upon  the  proposition  that  an  in- 
strument giving  the  right,  especially  when  exclu- 
sive, to  take  grass,  timber,  ice,  sand,  coal,  oil,  or 
other  mineral,  creates  a  legal  estate  in  land  known 
as  a  profit  a  prendre,  and  further,  such  an  estate 
or  right  can  be  created  only  by  grant  or  exception, 
and  perhaps  by  prescription  which  presupposes  an 
ancient  grant. 

In  Black's  Law  Distionary,  under  the  heading: 
"Profits  a  prendre,"  we  find : 

"These,  which  are  also  called  rights  of 
common,  are  rights  exercised  by  one  man  in  the 
soil  of  another,  accompanied  with  participation 
of  the  profits  of  the  soil  thereof;  as  rights  of 


38  INNOCENT  PURCHASER 

pasture,  or  of  taking  sand.     Profits  a*  prendre 

differ  from  easements  in  that  the  former  are 
rights  of  profit,  and  the  latter  are  mere  rights 
of  convenience  without  profit." 

The  subject  is  clearly  discussed  in  Tiffany  on 
Real  Property,  Volume  1,  Section  254,  page  868,  as 
follows : 

"Grants  of  Mining  Rights — Leases  and  Licenses. 

An  instrument  by  which  a  right  is  given  to 
take  minerals  from  land  is  usually  referred  to 
as  a  mining  lease  or  as  a  license,  without,  in 
the  ordinary  case,  any  effort  to  use  either  ex- 
pression with  any  degree  of  exactitude. 

The  owner  of  land  may  give  to  another  a 
right  to  extract  minerals  from  the  land  for  a 
period  of  time  or  in  perpetuity,  the  person  to 
whom  the  right  is  given  having  no  interest  in 
the  minerals  until  they  are  extracted.  This 
right  is  a  profit  a  prendre,  a  character  of  right 
discussed  in  another  part  of  this  work.  Such 
a  right,  or  the  transaction  by  which  it  is  creat- 
ed, is  occasionally  referred  to  as  a  license.  But 
this  is  a  misnomer.  A  license  to  mine  is  prop- 
erly merely  a  permission  to  extract  minerals 
from  the  licensor's  land,  which  is  revocable, 
at  least  in  the  ordinary  case,  and  is  purely  per- 
sonal. 

The  owner  of  land  may  make  a  lease  of  the 
land  for  a  limited  period,  with  a  right  in  the 
lessee  to  extract  the  minerals,  the  lessee  be- 
ing in  such  case  in  the  position  of  the  ordinary 
lessee  of  land,  free,  however,  from  liability  for 
waste  as  regards  the  minerals. 

Frequently  the  owner  of  land  makes  what 
is  in  terms  a  lease  for  years  of  the  minerals 
in  place,  or  of  the  land,  with  the  right  to  use 


OF  OIL  AND  GAS  LEASE  39 

it  for  mining  purposes  only,  or  employs  other 
language  which,  while  regarded  as  legally  suf- 
ficient to  create  an  estate  in  the  land  or  the 
minerals,  restricts  to  a  limited  period  the 
privilege  of  extracting  the  minerals.  Such  an 
instrument  may,  it  would  seem,  in  the  ordinary 
case  be  most  satisfactorily  regarded  as  a  lease 
of  the  land  or  of  certain  strata  in  the  land,  free 
from  liability  for  waste  as  regards  the  minerals. 
It  has  been  said  that  such  a  mining  lease  is 
equivalent  to  a  sale  of  the  minerals  in  place,  or 
of  a  portion  of  the  land,  but  this,  it  is  submit- 
ted, is  true  in  a  limited  sense  only.  The  effect 
of  such  a  lease  is  obviously  to  deplete  the  corpus 
of  the  subject  of  the  lease  as  the  lessee's  mining 
progresses,  and  in  that  sense  the  lease  may  ul- 
timately effect  a  transfer  of  a  portion  of  the 
land  for  the  consideration  named;  but  the 
same  might  be  said  of  the  grant  of  a  mere 
right  to  take  minerals  from  another's  land  at 
a  certain  royalty,  a  right  of  profit.  The  lease, 
since  it  transfers  to  the  lessee  merely  a  limited 
estate  in  the  minerals,  cannot  well  be  regarded 
as  equivalent-  to  a  sale  of  the  minerals,  if  by 
the  latter  expression  is  meant  an  absolute 
transfer  of  the  minerals.  It  ultimately  results, 
it  is  true,  in  the  acquisition  by  the  lessee  of  the 
absolute  ownership  of  such  minerals  as  he  may 
remove  during  the  term  named,  but  this  is  by 
reason  of  their  removal  by  him,  and  not  by  rea- 
son of  the  lease,  except  as  this  may  justify 
their  removal.  The  view  that  a  mining  lease 
is  a  sale  of  the  minerals,  it  is  to  be  remarked, 
does  not  harmonize  with  decisions  and  dicta 
that  the  sums  to  be  paid  by  the  lessee  for  the 
privilege  of  extracting  the  minerals  are  to  be 
regarded  as  rent. 

By  some  decisions,  if  the  rent  is,   by  the 


40  INNOCENT  PURCHASER 

terms  of  the  lease,  entirely  dependent  on  the 
extraction  of  ore,  a  covenant  on  the  part  of  the 
lessee  is  to  be  implied  that  he  will  work  on  the 
claim  or  mine  with  reasonable  diligence,  and 
occasionally  it  has  even  been  decided  that, 
although  there  is  no  express  provision  to  that 
effect,  the  lessor  may  assert  a  forfeiture  for 
failure  to  work.  It  would,  however,  be  more 
in  accord  with  principle  to  base  the  rights  of 
the  lessor  in  such  case,  as  to  resumption  of 
possession,  upon  the  theory  that  the  failure  to 
work  involves  an  offer  to  relinquish  possession 
which  the  lessor  may  accept,  thereby  effecting 
a  surrender  by  operation  of  law,  or  upon  the 
theory  that  a  promise  to  work  the  mine  is  to 
be  implied,  and  that  upon  the  lessee's  repudia- 
tion of  that  promise  the  other  party  may  res- 
cind and  recover  the  consideration  for  the 
promise,  that  is,  the  possession  of  the  land. 

A  conveyance,  by  the  owner  of  the  land,  of 
the  minerals  in  place  therein,  giving  an  abso- 
lute interest  in  the  minerals,  a  fee  simple  es- 
tate, has  occasionally  been  referred  to  as  a 
lease,  when  the  word  'lease'  was  used  in  the 
instrument,  and  a  rent  reserved,  with  a  right  of 
forfeiture  for  non-payment.  Such  a  use  of  the 
expression  'lease'  evidently  does  not  harmonize 
with  its  ordianry  use  as  applying  to  the  con- 
veyance of  an  estate  less  than  that  of  the  gran- 
tor." 
For  additional  discussion  by  Tiffany,  see  Volume 

2,  Section  385,  page  1396. 

Reference  to  "Words  and  Phrases,"  First  Series, 
Volume  6,  page  5666,  and  Second  Series,  Volume 

3,  page  1252,  shows  clearly  that,  where  the  land- 
owner gives  to  another  the  right  to  enter  and  take 
part  of  the  land,  as  soil,  timber,  or  minerals,  this 
right  is  properly  designated  as  a  profit  a    prendre, 


OF  OIL  AND  GAS  LEASE  41 

and  it  is  an  interest  or  estate  in  the  land,  a  chattel 
real,  an  incorporeal  hereditament,  and  is  more  than 
a  mere  easement,  because  the  right  exists  to  take 
part  of  the  land  itself. 

The  first  important  case  is  Funk  v.  Haldeman, 
53  Pa.  St.  229,  decided  by  the  Supreme  Court  of 
Pennsylvania  in  1866.  The  instruments  under  which 
Funk  based  his  claim  gave  him  a  right  to  enter  on 
the  land  and  develop  the  minerals.  He  was  re- 
quired to  begin  operations  within  a  definite  time, 
but  no  time  limit  was  fixed  for  the  duration  of  his 
right  to  prospect.  He  agreed  to  deliver  to  the 
landowner  one-third  of  the  minerals  which  were 
produced,  and  of  course  he  had  the  right  to  ap- 
propriate and  dispose  of  the  remaining  two-thirds. 
The  instruments  recited  that  there  was  no  intention 
to  convey  the  minerals  and,  consequently,  the  in- 
tention appeared  to  give  to  Funk  only  the  right  to 
enter,  develop,  and  appropriate  two-thirds  of  the 
minerals  produced.  The  right  created  were  ex- 
pressly made  assignable.  The  question  arose  as 
to  what  was  the  character  of  the  instruments,  and 
what  was  the  estate,  if  any,  which  was  created. 
After  a  thorough  and  learned  discussion,  it  was  said 
that  certainly  the  interest  was  an  incorporeal  here- 
ditament, a  profit  a  prendre,  though  the  latter  was 
not,  ordinarily,  but  could  be  made,  an  exclusive 
right  or  interest,  even  as  against  the  landowner. 
The  Court,  after  discussing  the  contention  that  a 
pure  license  only  had  been  created,  said: 

"But,  though  we  hold  the  papers  in  this 
instance  to  constitute  a  license,  and  not  a  lease, 
it  is  a  license  coupled  with  an  interest,  not  a 
mere  permission  conferred,  revocable  at  the 
pleasure  of  the  licensor,  but  a  grant  of  an  in- 
corporeal hereditament,  which  is  an  estate  in 
the  grantee,  and  may  be  assigned  to  a  third 
party." 


42  INNOCENT  PURCHASER 

As  stated  above,  the  Court  designates  the  right 
created  as  a  profit  a  prendre,  but  then  coins  the 
phase  "license  coupled  with  an  interest."  It  is 
said  that  this  Court  coined  the  phrase,  for  it  is  the 
first  case  that  can  be  found  which  uses  it  in  con- 
nection with  a  mineral  lease. 

In  Black  v.  Elkhorn  Co.,  49  Fed.  549,  it  is  said 
that  the  right  to  open  mines  and  appropriate  the 
minerals,  under  the  mining  law  of  Montana,  is  in 
its  nature  a  profit  a  prendre,  and  "a  prof  it  a  prendre 
is  an  interest  in  the  estate.  Post  v.  Pearsall,  22 
Wend.  425,  Pierce  v.  Keater,  70  N.  Y.  419." 

The  Supreme  Court  of  Kansas,  92  Pac.  1119,  in 
Phillips  v.  Springfield  Co.,  says 

"An  oil  or  gas  lease  conveys  no  present 
vested  interest  in  the  oil  and  gas  in  place.  The 
interest  conveyed  is  a  mere  license  to  explore, 
an  incorporeal  hereditament,  a  prof  it  a  pren- 
dre." 

In  Campbell  v.  Smith,  101  N.  E.  89,  the  Supreme 
Court  of  Indiana  says: 

"It  will  be  observed  that  appellant  did  not 
lease  the  land  generally,  and  did  not  surrender 
possession,  which  remained  in  her  subject  to 
the  right  of  exclusive  exploration  by  appellees. 
Under  the  holdings  in  this  state,  oil  and  gas  are 
not  the  subject  of  property  until  reduced  to 
possession;  hence  the  contract  is  just  what 
it  purports  to  be — an  agreement  for  the  ex- 
clusive right  to  prospect  and  market  the  pro- 
duct. The  proposition  is  well  stated  in  Bain- 
bridge  on  Mines  and  Mining,  246:  There 
is  a  great  difference  between  a  lease  of  mines 
and  a  license  to  work  mines.  The  former  is  a 
distinct  conveyance  of  an  actual  interest  or 
estate  in  lands,  while  the  latter  is  only  the  in- 


OF  OIL  AND  GAS  LEASE  43 

corporeal  right  to  be  exercised  in  the  lands  of 
others.  It  is  a  profit  a  prendre  and  may  be 
held  apart  from  the  possession  of  the  land. 
This  view  is  sustained  in  Baker  v.  Hart,  123 
N.  Y.  470,  25  N.  E.  948,  12  L.  R.  A.  60,  and 
O'Connor  v.  Shannon  (Tex.  Civ.  App.)  30  S. 
W.  1096." 

The  Supreme  Court  of  Oklahoma,  in  the  case  of 
Rich  v.  Doneghey,  177  Pac.  86,  decided  in  1918, 
discusses  somewhat  at  length  the  estate  created  by 
the  ordinary  lease.  It  was  said: 

"In  the  consideration  of  the  question  pre- 
sented it  will  perhaps  prove  helpful  if  notice  be 
first  taken  of  the  rights  of  the  lessee  created 
by  the  written  instrument  in  question.  At  the 
time  of  its  execution  the  plaintiffs  were  the 
owners  in  fee  simple  of  the  land.  By  virtue  of 
such  ownership  they  had,  on  account  of  the 
'vagrant  and  fugitive  nature'  of  the  substances 
constituting  'a  sort  of  subterranean  farae  na- 
turae' (In  Re  Indian  Territory  111.  Oil  Co.,  43 
Okl.  307,  142  Pac.  997)  no  absolute  right  or 
title  to  the  oil  or  gas  which  might  permeate 
the  strata  underlying  the  surface  of  their  land, 
as  in  the  case  of  coal  or  other  solid  minerals 
fixed  in,  and  forming  a  part  of,  the  soil  itself. 
Ohio  Oil  Co.  v.  Indiana,  177  U.  S.  190,  20  Sup. 
Ct.  576,  44  L.  Ed.  729. 

But  with  respect  to  such  oil  and  gas,  they 
had  certain  rights  designated  by  the  same 
courts  as  a  qualified  ownership  thereof,  but 
which  may  be  more  accurately  stated  as  ex- 
clusive right,  subject  to  legislative  control 
against  waste  and  the  like,  to  erect  structures 
on  the  surface  of  their  land,  and  explore  there- 
for by  drilling  wells  through  the  underlying 
strata,  and  to  take  therefrom  and  reduce  to 


44  INNOCENT  PURCHASER 

possession,  and  thus  acquire  absolute  title  as 
personal  property  to  such  as  might  be  found 
and  obtained  thereby.  This  right  is  the  proper 
subject  of  sale,  and  may  be  granted  or  re- 
served. Barker  v.  Campbell  Ratcliff  Land  Co. 
et  al,  167  Pac.  468,  L.  R.  A.  1918  A,  487.  The 
right  so  granted  or  reserved,  and  held  separate 
and  apart  from  the  possession  of  the  land  it- 
self, is  an  incorporeal  hereditament;  or  more 
specifically,  as  designated  in  the  ancient 
French,  a  profit  a  prendre,  analogous  to  a  pro- 
fit to  hunt  and  fish  on  the  land  of  another. 
Kolachny  v.  Galbreath,  26  Okl.  772,  110  Pac. 
902,  38  L.  R.  A.  (N.  S.)  451;  Funk  v.  Halde- 
man  et  al,  53  Pa.  229;  Phillips  v.  Springfield 
Crude  Oil  Co.,  76  Kans.  783,  92  Pac.  1119. 
Considered  with  respect  to  duration,  if  the 
grant  be  to  one  and  his  heirs  and  assigns  for- 
ever, it  is  of  an  interest  in  fee.  Funk  v. 
Haldeman,  supra.  An  interest  of  less  duration 
may  be  granted,  and  that  for  a  term  of  years 
has  been  denominated  by  this  court  a  chattel 
real.  Duff  v.  Keaton,  33  Okl.  92,  124  Pac. 
291,  42  L.  R.  A.  (N.  S.)  472.  Such  right  is  an 
interest  in  land.  14  Cyc.  1144;  Heller  v. 
Dailey,  28  Ind.  App.  555,  63  N.  E.  490.  If 
granted  in  the  homestead  of  the  family,  the 
wife  must  join  in  the  conveyance.  Carter  Oil 
Co.  v.  Popp,  174  Pac.  747.  A  grant  thereof 
is  an  alienation  within  the  meaning  of  the  acts 
of  Congress  removing  restrictions  (Eldred  v. 
Okmulgee  Loan  &  Trust  Co.,  22  Okl.  742,  93 
Pac.  929)  or  imposing  restrictions  (Parker  v. 
Riley,  243  Fed.  155  C.  C.  A.  572)  on  the 
alienation  of  allotted  Indian  land,  and  is  a  con- 
veyance within  the  meaning  of  section  9,  Act. 
Cong.  May  27,  1908,  c.  199  (35  Stat.  315), 
providing  that  'no  conveyance  of  any  interest 
of  any  full-blood  Indian  heir'  in  land  inherited 


OF  OIL  AND  GAS  LEASE  45 

from  any  deceased  allottee  of  the  Five  Civilized 
Tribes,  shall  be  valid  unless  approved  by  the 
county  court.  Hoyt  v.  Fixico  Co.,  175  Pac. 
517  (decided  Oct.  8,  1918). 

Bearing  these  principles  in  mind,  it  will  at 
once  be  seen  that  by  this  instrument  the  plain- 
tiffs granted  to  the  defendant  a  present  vested 
interest  in  their  land.  Brennant  v.  Hunter, 
172  Uac.  49;  Northwestern  Oil  &  Gas 
Company  v.  Branine,  175  Pac.  533  (de- 
cided October  8th,  1918).  That  is,  the  right 
for  at  least  five  years  of  mining  and  operating 
thereon  for  oil  and  gas,  which  includes,  of 
course,  the  right  to  explore  therefor,  and  to 
extract  therefrom  and  reduce  to  possession,  as 
their  personal  property,  such  as  may  be  found. 
In  other  words,  it  was  a  grant  of  the  exclusive 
right,  for  the  time  specified,  to  take  all  the  oil 
and  gas  that  could  be  found  by  drilling  wells 
upon  the  particular  tract  of  land,  with  the 
accompanying  incidental  right  to  occupy  so 
much  of  the  surface  as  required  to  do  those 
things  necessary  to  the  discovery  of  and  for  the 
enjoyment  of  the  principal  right  so  to  take  oil 
or  gas.  No  more  nor  greater  right,  except 
perhaps  as  to  duration,  with  respect  to  oil  and 
gas,  could  be  granted.  Although  there  had 
been  in  terms  a  purported  conveyance  of  all  the 
oil  and  gas  in  the  place,  yet,  by  reason  of  the 
nature  of  these  substances,  no  title  thereto  or 
estate  therein  would  have  vested,  but  only  the 
right  to  search  for  and  reduce  to  possession, 
such  as  might  be  found,  and  when  reduced  to 
possession,  not  merely  discovered,  title  thereto 
and  an  estate  therein  as  corporeal  property 
would  vest.  Kolachny  v.  Gabreath,  supra; 
Frank  Oi  Co.  v.  Belleview  Oil  &  Gas  Co.,  29 
Okl.  719,  119  Pac.  260,  43  L.  R.  A.  (N.S.)  487; 


46  INNOCENT  PURCHASER 

Hill  Oil  &  Gas  Co.  v.  White,  53  Ok.  748 ;  157  Pac. 
710.  Though  denominated  a  lease,  and  in  difer- 
ence  to  custom  will  be  so  referred  to  herein,  the 
instrument  before  us,  strictly  speaking,  is  not 
such,  but  is  in  effect  a  grant  in  praesenti  of  all 
the  right  to  the  oil  and  gas  to  be  found  in  the 
lands  described,  with  the  right  for  a  term  of 
five  years  to  enter  and  search  therefor,  and,  if 
found,  to  produce  and  remove  them,  not  only 
during  said  term,  but  also  as  long  thereafter 
as  either  is  produced,  and  to  occupy  so  much 
of  the  surface  of  the  land  as  may  be  necessary 
for  the  purpose  of  exploration  or  production, 
or  both." 

It  will  be  remembered  that  the  Oklahoma  Court 
holds  the  theory  that  oil  and  gas  are  possessed  of 
the  nature,  and  are  afforded  the  opportunity,  of 
migration  with  considerable  freedom,  and  therefore 
a  deed  to  such  minerals  is  construed  to  be  nothing 
but  a  lease,  or  rather  as  creating  the  same  right 
and  estate  which  exists  under  the  ordinary  lease, 
which  is  a  right  to  enter  and  develop  and  to  ap- 
propriate a  part  of  the  production.  The  Oklahoma 
Courts  definitely  hold,  however,  that  this  right, 
properly  designated  as  a  profit  a  prendre,  is  an  in- 
terest in  lands. 

In  Canada  an  oil  and  gas  lease  is  held  to  create 
a  profit  a  prendre.  Benfield  v.  Stevens,  17  Ont. 
Pr.  339 ;  Haven  v.  Hughes,  27  Ont.  App.  1 ;  Mcln- 
tosh  v.  Leskie,  13  O.  L.  R.  54;  Canadian  Co.  v. 
Williams,  21  O.  L.  R.  472.  In  the  Mclntosh  case 
it  was  said : 

"The  legal  effect  of  this  instrument  (by 
whatever  name  it  may  be  called)  is  more  than 
a  license;  it  confers  an  exclusive  right  to  con- 
duct operations  on  the  land,  in  order  to  drill 
for  and  produce  the  subterranean  oil  or  gas 


OF  OIL  AND  GAS   LEASE  47 

which  may  be  there  found  during  the  period 
specified.  It  is  a  profit  a  prendre,  an  incor- 
poreal right  to  be  exercised  in  the  land  des- 
cribed." 

The  Supreme  Court  of  Texas  has  recognized 
that  an  instrument,  similar  to  the  oil  lease,  creates 
a  profit  a  prendre,  and  is  a  conveyance  of  an  in- 
terest in  land,  a  legal  estate.  In  T.  &  P.  Ry.  Co. 
v.  Durrett,  57  Tex.  48,  the  husband,  without  the 
joinder  of  the  wife,  and  against  her  consent,  exe- 
cuted an  instrument  to  the  Railway  Company,  in 
consideration  of  one  dollar,  by  virtue  of  which  the 
Company  was  given  a  right  of  way  across  the 
separate  property  of  the  wife,  "together  with  the 
use  of  the  wood,  timber,  water,  etc.  pertaining  to 
the  land."  Justice  Stayton  points  out  that,  if  noth- 
ing but  a  mere  easement  was  created,  it  was  an 
interest  in  land.  Continuing  he  said: 

"The  right  attempted  to  be  conveyed  is, 
however,  more  than  an  easement  in  the  legal 
acceptation  of  that  term;  in  addition  to  grant- 
ing a  mere  easement,  it  attempts  to  give  the 
right  to  take  something  out  of  and  from  the 
soil,  which  is  known  in  the  books  as  a  profit  a 
prendre — a  right  coupled  with  a  profit.  Re- 
ferring to  this  subject  in  his  work  above  re- 
ferred to,  (Washbum's  Servitudes  and  Ease- 
ments) p.  11,  Mr.  Washburn,  commenting  on 
the  case  of  Post  v.  Pearsall,  22  Wend.,  425, 
says:  'The  distinction  seems  to  be  this:  if 
the  easement  consists  in  a  right  of  profit  a 
prendre,  such  as  taking  soil,  gravel,  minerals, 
and  the  like,  from  another's  land,  it  is  so  far 
of  the  character  of  an  estate  or  interest  in 
the  land  itself,  that,  if  granted  to  one  in  gross, 
it  is  treated  as  an  estate,  and  may  therefore 
be  one  for  life  or  inheritance. 


48  INNOCENT  PURCHASER 

Such  being  the  character  of  the  con- 
veyance under  which  the  appellant  claims, 
if  valid,  it  carries  with  it  an  interest  and  estate 
in  the  separate  property  of  the  wife  which 
at  no  future  time  can  be  revoked,  even  after 
the  power  of  the  husband  to  control  and 
manage  her  separate  estate  may  cease  by  his 
death. 

It  attempts  to  give  the  right,  not  only  for 
roadway,  but  also  to  use  the  wood,  timber, 
water,  soil,  gravel  or  stone  which  may  be  on 
the  land  covered  by  the  deed,  for  such  pur- 
pose, and  at  any  place,  and  to  such  extent 
as  to  the  appellant  may  seem  proper,  although 
such  use  may  render  the  land  utterly  value- 
less to  the  wife.  The  power  to  make  such 
conveyance  exists  alone  in  the  owner  of  the 
soil,  and  the  statutes  of  this  state  have 
vested  no  such  power  in  a  husband  in  re- 
ference to  lands  the  separate  property  of 
the  wife.  The  power  of  the  husband  over 
the  separate  estate  of  the  wife  is  one  of  con- 
trol and  management,  and  not  of  alienation. 
This  invests  him  with  such  control  and 
powers  as  are  incident  and  necessary  to  the 
due  exercise  of  his  authority,  but  gives  him 
no  power  over  matters  affecting  her  right 
or  title  to  the  property,  or  to  perform  any  act 
by  which  such  title  may  be  endangered.' 
McKay  v.  Treadwell,  8  Tex.,  180.  Hence 
we  are  of  the  opinion  that  the  husband  had 
no  power  to  make  the  conveyance  relied 
upon  by  the  appellant,  and  that  the  same  in- 
terposes no  obstacle  to  the  recovery  sought 
by  Mrs.  Durrett." 

Certainly  this  decision   is   an   authority  on  the 
proposition  that  the  oil  lease  creates  a  present  vest- 


OF  OIL  AND  GAS  LEASE  49 

ed  interest  in  land,  a  legal  estate  which  is  properly 
termed  "profit  a    prendre." 

It  is  clearly  established  that  a  profit  a  prendre, 
thought  an  incorporeal  interest,  creates  an  estate 
in  land.  In  addition  to  the  authorities  given  above, 
see  Goodrich  v.  Burbank,  12  Allen  (Mass.)  459; 
Grubb  v.  Guilford,  4  Watts  (Pa.)  223;  Johnston 
\.  Cambria  Co.,  32  Pa.  St.  241;  Boatman  v.  Las- 
ley,  23  Ohio  St.  614. 

Mr.  James  A.  Veasey,  of  the  Tulsa,  Oklahoma 
Bar,  delivered  in  July,  1920,  at  the  Texas  State 
Bar  Association  at  El  Paso,  an  address  on  "The 
Struggle  of  the  Oil  Industry  for  the  sanctity  of  its 
Basic  Contract:  The  Oil  and  Gas  Lease."  Mr. 
Veasey  reaches  the  conclusion  that  an  estate  in 
lands  is  created  by  the  ordinary  lease,  and  it  is 
properly  designated  as  a  profit  a  prendre.  The 
paper  by  Mr.  Veasey  is  a  valuable  discussion  of  fun- 
damental principles  appicable  to  the  oil  lease. 

REGARDLESS  OF  NAME,  ESTATE  IN  LANDS  IS 
CREATED. 

Without  reference,  however,  to  the  name  of  the 
estate  created,  whether  profit  a  prendre,  license, 
license  coupled  with  an  interest,  chattel  real,  incor- 
poreal hereditament,  or  lease,  it  is  held  everywhere 
that  an  instrument,  of  the  character  usually  termed 
a  lease,  does  create  an  interest  in  lands,  and  there- 
fore a  legal  estate. 

ALABAMA: 

State  v.  Coal  Co.,  73  So.  5. 
Millican  v.  Fauk,  20  So.  594. 

CALIFORNIA: 

Graciosa  Co.  v.  County,  99  Pac.  483. 
Chandler  v.  Hart,  119  Pac.  516. 


50  INNOCENT  PURCHASER 

CANADA: 

Benfield  v.  Stevens,  17  Ont.  Pr.  339. 
Haven  v.  Hughes,  27  Ont.  App.  1. 
Mclntosh  v.  Leskie,  13  O.  L.  R.  54. 
Canadian  Co.  v.  Williams,  21  O.  L.  R.  472. 

CONNECTICUT: 

Appeal  of  Sanford,  54  Atl.  739. 

FEDERAL: 

Hyatt  v.  Vincennes  Bank,  28  L.  Ed.  1009. 
Moore  v.  Sawyer,  167  Fed.  826. 
Lindlay  v.  Raydure,  239  Fed.  928. 
Shaffer  v.  Marks,  241  Fed.  139. 

ILLINOIS: 

Poe  v.  Ulrey,  84  N.  E.  46. 
Warterford  v.  Shipman,  84  N.  E.  53. 
Calame  v.  Paisley,  130  N.  E.  310. 

INDIANA: 

Heller  v.  Daley,  63  N.  E.  490. 

KENTUCKY: 

Wolfe  v.  Beckett,  105  S.  W.  447. 

KANSAS: 

Franklin  Co.  v.  Coal  Co.,  23  Pac.  630. 
Robinson  v.  Smalley,  171  Pac.  1155. 
White  v.  Green,  173  Pac.  974. 

LOUISIANA: 

Rives  v.  Gulf  Co.,  62  So.  623. 

MISSOURI: 

Boone  v.  Stover,  66  Mo.  430. 

OHIO: 

Harris  v.  Oil  Co.,  48  N.  E.  502,  506. 
Brown  v.  Fowler,  63  N.  E.  76. 
Gas  Co.  v.  Eckert,  71  N.  E.  281. 


OF  OIL  AND  GAS  LEASE  51 

PENNSYLVANIA: 

Funk  v.  Haldeman,  53  Pa.  St.  229. 

Brown  v.  Beecher,  15  Atl.  608. 

Kelly  v.  Keys,  62  Atl.  911. 

Barnsdall  v.  Bradford,  74  Atl.  207,  26  L.  R.  A. 

(N.  S.)  614. 

McKean  Co.  v.  Wolcott,  98  Atl.  955. 
Arance  Co.  v.  Copper  Co.,  109  Atl.  771. 

TENNESSEE: 

Bates  v.  Georgia  Co.,  229  S.  W.  153. 

TEXAS : 

OIL  LEASE. 

Benavides  v.  Hunt,  79  Tex.  383. 

Stark  v.  Guffey  Co.,  98  Tex.  542. 

Gilmore  v.  O'Neil,  107  Tex.  18;  173  S.  W.  203. 

Griffin  v.  Bell,  202  S.  W.  1034. 

Haynie  v.  Stovall,  212  S.  W.  792. 

Priddy  v.  Green,  220  S.  W.  243,  248. 

Maynard  v.  Gilliam,  225  S.  W.  818. 

Pantaze  v.  McDill,  288  S.  W.  962. 

Texas  Co.  v.  Tankersley,  229  S.  W.  672. 

opinion  March  23,  1921,  not  yet  reported. 
Canon  v.  Scott,  230  S.  W.  1042. 

April  12,  1921,  not  yet  reported. 

SIMILAR  INSTRUMENTS. 

T.  &  P.  Ry.  Co.  v.  Durrett,  57  Tex.  48. 
H.  &  T.  C.  Ry.  Co.  v.  Cluck,  72  S.  W.  83. 
Parsons  v.  Hunt,  98  Tex.  420,  84  S.  W.  644. 
Speer  on  Marital  Rights,  Sections  226  &  410. 

WEST  VIRGINIA: 

Harvey  Co.  v.  Dillon,  53  S.  E.  928. 
Tootman  v.  Courtney,  58  S.  E.  915. 
Campbell  v.  Lynch,  94  S.  E.  739. 


52  INNOCENT  PURCHASER 

Some  of  the  cases  cited  above  hold  that  no 
corporeal  estate  is  created  by  the  ordinary  lease, 
and  that  the  lessee  does  not  acquire  any  title  or  es- 
tate in  the  minerals  until  reduced  to  pos- 
session, but  all  of  them  (excluding  possibly  some 
of  the  Texas  cases)  hold  that  the  right  to  enter  and 
develop,  being  created  by  an  instrument  in  writing 
for  a  definite  time  or  in  perpetuity,  and  upon  valu- 
able consideration,  vests  upon  delivery  of  the  instru- 
ment, and  this  right,  whatever  its  name,  is  an  estate 
in  lands,  and  can  be  enjoyed  even  to  the  exclusion 
of  the  landowner.  If  an  estate  exists,  it  is  a 
legal  estate.  See  Patty  v.  Middleton,  82  Tex. 
586  for  discussion  of  what  is  a  legal  title  or  estate, 
particularly  in  connection  with  the  innocent  pur- 
chaser doctrine. 

TEXAS  CASES  HOLDING  THAT  AN  ESTATE  IN 
LANDS  EXISTS. 

PROFIT  A   PRENDRE. 

The  case  of  T.  &  P.  Ry.  Co.  v.  Durrett,  57 
Tex.  48,  has  already  been  discussed.  In  this  case 
it  appeared  that  the  husband,  without  the  joinder 
of  the  wife  and  against  her  consent,  executed  an 
instrument  to  the  Railway  Company,  giving  it  a 
right  of  way  and  also  the  right  to  take  coal,  wood, 
water,  etc.  from  the  land  which  was  the  separate 
property  of  the  wife.  Justice  Stayton  held  that, 
beyond  question,  the  instrument  purported  to  create 
an  easement  which  was  an  estate  in  land,  and, 
properly  construed,  the  instrument  created  an  es- 
tate of  greater  dignity  than  an  easement,  inasmuch 
as  the  Railway  Company  was  given  the  right  to 
take  coal,  wood,  etc.  which  was  part  of  the  soil  or 
land  itself.  Justice  Stayton  says  that  a  right  of 
this  character  is  a  profit  a  prendre,  which  is  an 
estate  in  lands,  and  can  therefore  be  created  only 


OF  OIL  AND  GAS  LEASE  55 

by  deed.  Since  the  instrument  purported  to  be  a 
conveyance  of  an  interest  in  land,  the  Court  held 
it  was  inoperative  on  account  of  the  failure  of  the 
wife  to  join. 

MINING  LEASE. 

Most  of  the  Texas  cases  cited  above  involved 
the  homestead,  and  will  be  discussed  in  connection 
with  the  execution  of  leases  on  homestead. 

In  Beneavides  v.  Hunt,  79  Tex.  383,  Judge 
Stayton  declared  that  an  instrument  giving  the  right 
to  mine  coal  and  other  minerals  conveyed  an  in- 
terest in  land,  and  therefore  the  instrument  was 
treated  as  a  deed,  and  the  estate  as  a  legal  estate. 

The  Supreme  Court,  in  Starke  v.  Guffey  Co., 
98  Tex.  542,  in  passing  upon  the  question  of  whether 
a  corporation,  by  executing  a  mineral  lease  upon 
all  of  its  lands,  thereby  effected  a  radical  change 
in  the  business  and  purposes  of  the  company,  held 
that  the  corporation  had  the  right  to  convey,  and 
a  lease  for  a  longer  term  than  one  year  was  a 
conveyance.  In  other  words,  it  was  held  that  a 
lease  for  longer  than  one  year  was  a  conveyance 
of  an  interest  in  land,  a  conveyance  of  legal  title. 

In  Gilmore  v.  O'Neil,  107  Tex.  18,  173  S.  W. 
203,  the  controversy  involved  a  strip  of  one-third 
of  an  acre.  O'Neil  claimed  under  a  mineral  lease 
and  a  deed  which  described  a  tract  of  1.35  acres, 
although  it  was  the  intention  of  the  parties  to  lease 
and  to  sell  a  track  of  1.662  acres,  and  which  would 
include  the  disputed  strip  of  one-third  of  an  acre. 
Gilmore,  Nicholson  and  others,  as  plaintiffs,  claimed 
under  a  subsequent  lease  which,  by  description, 
covered  the  disputed  strip.  Plaintiffs  based  their 
right  to  recover  as  being  innocent  purchasers  for 
value  in  good  faith,  without  notice  of  the  fact  that 
ir.  the  lease  to  O'Neil  and  in  the  deed  to  his  lessor 


54  INNOCENT  PURCHASER 

there  was  an  error  in  description,  and  in  reality  it 
was  intended  in  such  instruments  to  cover  the  en- 
tire 1.662  acre  tract.  Justict  Phillips  wrote  the 
opinion,  and  it  was  held  that  the  plaintiffs,  who  had 
only  a  leasehold  estate  under  the  usual  mineral 
lease,  had  nevertheless  a  legal  estate  and  title,  and, 
if  the  facts  existed  necessary  to  make  a  case  of  bona 
fide  purchaser,  could  establish  the  lease  as  against 
O'Neil.  It  was  held,  however,  that  the  plaintiffs 
had  notice  of  the  claim  of  O'Neil  and  therefore 
they  took  subject  to  his  rights.  It  was  clearly 
held  on  the  other  hand  that  a  legal  estate  was 
created  by  the  lease,  and  the  lessees  or  assignees 
could  establish  that  title  and  uphold  the  lease  if 
the  essentials  of  innocent  purchaser  had  existed. 

In  Priddy  v.  Green,  220  S.  W.  243,  248,  the  or- 
dinary oil  lease  was  involved,  and  it  was  held 
that  such  a  lease  was  more  than  a  mere  license,  that 
is  created  an  interest  in  land,  "an  estate  which,  by 
the  terms  of  the  instrument  itself,  is  one  of  inheri- 
tance and  for  a  term  of  more  than  one  year."  Con- 
tinuing, the  Court  said:  "The  contract  in  question 
conveys  an  interest  in  lands;  i.  e.,  the  right  to  go 
on  the  land  and  explore  for  oil,  and  do  the  other 
things  named  in  the  instrument." 

In  Texas  Co.  v.  Tankersley,  229  S.  W.  672,  decided 
by  the  San  Antonio  Court  of  Appeals  on  March  23, 
1921,  it  was  held  that  a  suit  to  cancel  the  ordinary  oil 
lease  was  a  suit  involving  lands  and  the  title  there- 
to, and  therefore  venue  was  controlled  by  Subdi 
vision  14  of  the  Venue  Statute,  being  Art.  1830  of 
of  the  Revised  Statutes  of  1911. 

A  case  very  much  in  point  is  that  of 
Canon  v.  Scott,  230  S.  W.  1042,  opinion 
by  El  Paso  Court  of  Appeals,  filed  April  14, 
1921.  Cry  sup,  the  owner  of  the  land, 
executed  on  March  1,  1918,  for  a  consider- 


OF  OIL  AND  GAS  LEASE  55 

ation  of  two  hundred  dollars,  an  ordinary 
"lease,  demise  and  let"  lease  to  Canon.  On 
the  following  day  Crysup  conveyed  to  Willis  in 
consideration  of  cancellation  of  vendor's  lien  notes 
which  had,  however,  long  since  been  barred,  as  well 
as  the  right  of  Willis  to  foreclose  or  sue  for  the 
land.  Willis  then  conveyed  to  Scott  &  Carmody. 
Suit  was  brought  by  Scott  &  Carmody  to  cancel  the 
lease  to  Canon,  and  the  main  question  before  the 
Court  was  whether  the  lease  to  Canon  was  simply 
an  option,  revocable  at  will  by  the  lessor,  or  was 
a  conveyance  of  an  estate  in  the  land  which  could 
not  be  revoked  by  lessor  at  his  pleasure.  It  was 
contended  by  Scott  &  Carmody  that  the  lease  was 
revocable  at  will,  and  had  been  revoked  by  Crysup 
by  his  deed  on  March  2,  1918,  the  day  after  the 
lease  was  executed.  Justice  Walthall,  writing  the 
opinion  of  the  Court,  states  that  if  only  a  nominal 
consideration  had  been  paid  for  the  lease  and  the 
real  consideration  was  development,  then  the  lessee 
acquired  no  title  but  only  a  right  to  enter  and  de- 
velop, which  was  revocable  prior  to  entry  by  the 
lessee.  He  further  says  that  a  valuable  considera- 
tion, as  distinguished  from  a  nominal  considera- 
tion, was  paid  for  the  lease,  and  it  is  now  settled,  in 
view  of  Starke  vs.  Guffey  Co.,  98  Tex.  542,  that  a 
lease  for  more  than  one  year  is  a  conveyance,  there- 
fore, "We  have  concluded  that  the  interest  ac- 
quired by  Canon,  while  only  the  right  to  develop  the 
minerals  in  the  land,  is  a  present  vested  right 
to  enter  and  produce  minerals,  a  vested  legal  estate 
and  interest  for  a  valuable  consideration  paid,  and 
that  such  interest  was  not  revoked  by  Crysup  in 
the  deed  to  Willis." 

It  would  seem  that  the  El  Paso  Court  has  paved 
the  way  for  clearing  up  the  confusion  as  to  the 
nature  and  character  of  the  mineral  lease.  The 
Court  recognizes  the  fact  that  the  right  to  develop, 


56  INNOCENT  PURCHASER 

when  based  upon  valuable  consideration  and  for 
a  definite  time,  is  a  present  vested  legal  estate 
which  cannot  be  revoked  by  the  lessor,  and  the 
lessee's  option  to  drill  or  pay  in  lieu  of  drilling  is 
simply  an  incident  to  the  estate  created. 

A  later  decision  by  the  El  Paso  Court  in  the 
case  of  Taylor  v.  Turner,  230  S.  W.  1031, 
opinion  filed  April  28,  1921,  cannot  be  rec- 
onciled. In  this  case  it  was  shown  that 
Taylor  conveyed  the  property  to  Casper, 
retaining  vendor's  lien  to  secure  the  purchase 
money  notes.  One  of  the  notes,  together  with  the 
superior  title,  was  transfered  to  a  mortgage  com- 
pany, though  Taylor  retained  a  second  lien  to  se- 
cure the  balance  of  the  notes  held  by  him.  These 
notes  were  then  transferred  by  Taylor  to  Turner 
"together  with  the  superior  title  in  and  to  the 
lands."  Turner  requested  Taylor  to  get  a  deed 
from  Casper  in  consideration  of  the  cancellation  of 
the  second  lien  notes,  and  a  quit-claim  deed  was 
finally  obtained  and  delivered  to  Turner  in  March, 
1918.  After  Taylor  had  been  authorized  to  act 
for  Turner  in  securing  the  deed,  but  some  months 
before  the  deed  was  obtained,  Taylor,  in  the  name 
of  Eaton,  took  a  lease  in  the  usual  form  from  Cas- 
per, which  lease  recited  a  valuable  consideration. 
This  lease  was  dated  January  30,  1918,  and  was 
filed  for  record  March  14,  1918.  The  deed  from 
Casper  to  Turner  was  dated  March  9,  1918,  and 
it  was  shown  that  Turner,  when  he  received  the 
deed,  did  not  know  that  Casper  had  executed  the 
lease  to  Eaton.  The  lease  was  transferred  several 
times,  so  that  at  the  time  of  trial  the  leasehold 
rights  were  owned  by  Spencer  and  the  New  Domain 
Oil  Company.  Turner  sued  to  set  the  lease  aside, 
alleging  fraud  on  the  part  of  Taylor.  Spencer  and 
the  Oil  Company  defended  as  innocent  purchasers, 
etc.,  and  it  was  proved  that  they  purchased  the 


OF  OIL  AND  GAS  LEASE  57 

leasehold  rights  for  full  value  in  good  faith,  and 
without  notice  further  than  shown  by  the  records. 
The  trial  court  rendered  judgment  for  Turner,  and 
denied  relief  to  Spencer  and  the  Oil  Company  on 
the  pleas  of  innocent  purchasers. 

Justice  Harper,  writing  the  opinion  of  the  Ap- 
pellate Court,  affirmed  the  judgment  on  the  theory 
that  the  question  of  innocent  purchaser  was  not 
applicable  to  Spencer  and  the  Oil  Company,  inas- 
much as  at  the  time  the  lease  was  taken  the 
deed  to  Turner  had  not  been  executed,  and  the 
defense  of  innocent  purchaser  applied  only  to 
subsequent  purchasers.  Justices  Higgins  and  Wal- 
thall  concurred  in  the  affirmance  of  the  judgment 
of  the  trial  court,  but  upon  the  following  grounds: 

(1)  The  holders  of  the  leasehold  estate  pur- 
chased with  notice  of  the  outstanding  lien  securing 
the  purchase  money  notes;   therefore,   their  right 
was  to  redeem  and  thereby  protect  the  lease. 

(2)  The  lessor  held  under  an  executory  con- 
tract, and  his  title  was  equitable,  and  therefore  one 
holding  under  him   could   not  defend   as  innocent 
purchaser. 

(3)  The  lease  did  not  convey  title,  but  amount- 
ed merely  to  a  grant  or  option  to  prospect  and  to 
reduce  the  mineral  to  possession  and   "this  being 
ite  nature,  they  cannot  claim  to  be  innocent  purchas- 
ers.    Oil  &  Pipe  Line  Co.  v.  Teel,  95  Tex.  591." 

Perhaps  it  was  proper  to  affirm  the  judgment 
of  the  trial  court  under  the  facts  which  existed,  but 
it  is  difficult,  if  not  impossible,  to  reconcile  the 
views  of  the  Court,  as  expressed  in  the  opinion, 
with  the  views  as  stated  in  the  opinion  in  the  Canon 


58  INNOCENT  PURCHASER 

case.  In  the  Canon  case,  it  was  unequivocally 
stated  that  under  the  usual  lease  the  instrument 
conveyed  or  created  a  present  vested  legal  estate 
and  interest.  In  the  Taylor  case  it  was  held  that 
the  same  type  of  instrument  did  not  create  any 
legal  estate,  but  created  only  an  option  to  prospect. 
Since  the  Taylor  case  was  decided  only  two  weeks 
after  the  Canon  case,  it  is  unreasonable  to  assume 
that  the  opinion  in  the  Canon  case  had  been  forgot- 
ten. No  reference  is  made  to  the  Canon  case  in 
the  opinion  in  the  Taylor  case,  therefore,  one  neces- 
sarily concludes  that  the  Court  considers  that  the 
views,  as  expressed  in  the  two  cases,  are  not  con- 
flicting. It  will  be  interesting  to  see  whether  this 
attitude  can  be  maintained.  The  El  Paso  Court 
certainly  overlooked  the  case  of  Gilmore  v.  O'Neil, 
which  will  be  discussed  fully  hereafter. 

AGRICULTURAL  LEASE. 

It  is  well  settled  that  an  agricultural  lease,  or  a 
lease  on  a  dwelling,  if  for  longer  than  one  year, 
conveys  an  interest  in  land,  a  legal  estate.  Dority 
v.  Dority,  96  Tex.  215,  71  S.  W.  950;  Starke  v. 
Guffey  Co.,  98  Tex.  542,  86  S.  W.  1 ;  Speer  on  Mari- 
tal Rights,  Sections  226  and  410.  The  ordinary 
oil  lease  not  only  creates  an  easement  and  gives 
the  right  of  exclusive  possession,  but  it  likewise 
authorizes  the  lessee  to  appropriate  a  part  of  the 
land  itself,  a  much  higher  right  than  exists  under 
the  ordinary  agricultural  lease.  If  an  agricultural 
lease  for  more  than  one  year  is  a  conveyance  of 
a  legal  estate,  surely  an  oil  lease  for  more  than  a 
year  creates  a  legal  estate. 

OTHER  ANALOGOUS  INSTRUMENTS. 

In  Parsons  v.  Hunt,  98  Tex.  420,  it  was  held 
that  an  instrument  granting  the  right  to  use  land 


OF  OIL  AND  GAS  LEASE  59 

in  connection  with  the  operation  of  a  ferry  created 
an  interest  in  land,  a  legal  estate,  and  should  be 
treated  as  a  conveyance  of  title. 

In  H.  &  T.  C.  Ry.  Co.  v.  Cluck,  72  S.  W.  83,  it 

appeared  that  the  husband,  without  the  joinder 
of  the  wife,  executed  an  instrument,  designated  as 
a  contract,  which  gave  to  the  Railway  Company  the 
right  to  construct  and  operate  upon  the  homestead 
pipe  lines,  pump  stations,  etc.  necessary  to  obtain 
water  from  a  spring  situated  on  the  homestead.  It 
was  held  that  the  instrument  in  effect  was  a  con- 
veyance of  an  interest  in  land  and,  since  the  wife 
did  not  join,  the  conveyance  was  void.  The  instru- 
ment was  very  similar  to  the  ordinary  oil  lease.  It 
gave  the  right  to  appropriate  water  instead  of  oil. 
and  to  erect  necessary  appliances  to  carry  on  opera- 
tions. There  is  more  reason  to  hold  a  mineral 
lease  a  conveyance,  inasmuch  as  the  mineral  is 
exhausted  by  operations,  whereas  the  water  supply 
is  maintained  and  replenished. 

The  ordinary  easement  or  right  of  way  is  an 
interest  in  land,  a  legal  estate.  A  mineral  lease 
not  only  creates  an  easement  or  right  of  way,  but 
authorizes  an  appropriation  of  the  land,  even  to  the 
exhaustion  of  the  mineral  estate. 

The  conclusion  to  be  drawn  from  the  authori- 
ties is  that  the  ordinary  mineral  lease  is  a  con- 
veyance of  a  legal  estate,  and  our  courts  have  so 
held,  as  will  be  further  shown  in  the  following  dis- 
cussion of  oil  leases  upon  homesteads. 

LEASE  ON  HOMESTEAD. 

Because  the  instrument  which  gives  the  right 
to  enter  and  develop  creates  an  estate  in  lands, 
though  it  is  only  an  incorporeal  estate,  it  is  held 
that  the  wife  must  join  the  husband  in  a  lease 
covering  a  homestead,  in  order  to  satisfy  the  con- 


60  INNOCENT  PURCHASER 

stitutional  or  statutory  provisions  requiring  the 
joinder  of  the  wife  in  the  conveyance  of  a  home- 
stead. 

KANSAS: 

Franklin  Co.  v.  Coal  Co.,  23  Pac.  630. 
Palmer  Co.  v.  Parish,  59  Pac.  640. 
Robinson  v.  Smalley,  171  Pac.  1155. 

OKLAHOMA: 

Carter  Co.  v.  Popp,  174  Pac.  747. 
Rich  v.  Doneghey,  177  Pac.  86. 
Treese   v.    Shoemaker,    11    Martin    Oil    &    Gas 
Service  289. 

ILLINOIS: 

Poe  v.  Ulrey,  84  N.  E.  46. 

TEXAS: 

Griffin  v.  Bell,  202  S.  W.  1034. 

Haynie  v.  Stovall,  212  S.  W.  792. 

Maynard  v.  Gilliam,  225  S.  W.  818. 

H.  &  T.  C.  Ry.  Co.  v.  Cluck,  72  S.  W.  83. 

It  was  held  in  Colquitt  v.  Southern  Oil  Co.,  69 
S.  W.  169,  that  an  instrument  which  conveys  the 
minerals  in  place  must  be  signed  by  the  wife  in 
order  to  be  valid,  as  far  as  the  homestead  is  con- 
cerned. Of  course  a  deed  to  minerals  comes  clear- 
ly within  the  rule  that  the  wife  must  join  in  the 
conveyance  of  a  homestead.  As  far  as  can  be 
found,  there  is  no  decision  in  Texas  dealing  direct- 
ly, or  rather  at  length,  with  the  necessity  of  the 
wife  to  join  in  a  lease  of  the  homestead,  as  dis- 
tinguished from  a  deed  to  the  minerals  under  the 
homestead. 

In  Griffin  v.  Bell,  202  S.  W.  1034,  the  instru- 
ment under  consideration  was  treated  as  a  lease, 
and  indeed  it  was  such,  and  it  appeared  that  the 
wives  of  one  or  two  of  the  lessors  did  not  join. 


OF  OIL  AND  GAS  LEASE  61 

The  Court,  without  discussing  the  question,  held 
that  the  failure  of  the  wives  to  join  invalidated  the 
lease,  as  far  as  the  homesteads  were  concerned. 

In  Haynie  v.  Stovall,  212  S.  W.  793,  and  May- 
nard  v.  Gilliam,  225  S.  W.  818,  it  was  held  that 
a  contract  to  make  a  lease  on  the  homestead  was 
void,  even  though  the  wife  signed  and  acknowledg- 
ed the  same.  The  Court  considered  that  the  lease 
would  be  equivalent  to  a  conveyance  of  an  in- 
terest in  the  land,  and  therefore  a  contract  to 
convey  would  not  be  enforceable  as  against  the 
homestead,  regardless  of  the  joinder  of  the  wife. 

The  Haynie,  Griffin  and  Maynard  cases  un- 
questionably were  decided  upon  the  theory  that 
the  ordinary  lease  is  more  than  a  mere  option,  but 
operates  to  convey  an  interest  in  land,  a  legal  es- 
tate; for  otherwise  there  would  be  no  necesity  for 
the  wife  to  join.  The  statute  requires  the  joinder 
of  the  wife  only  with  respect  to  conveyances,  and 
if  a  lease  is  not  a  conveyance  of  an  interest  in  land, 
neither  the  Constitution  nor  the  statutes  require  the 
joinder  of  the  wife.  Further,  if  the  ordinary  lease 
is  a  mere  option  to  acquire  an  interest  in  land,  then 
it  is  voidable  as  to  homestead,  whether  or  not  the 
wife  signs,  for  an  executory  contract  to  convey 
homestead  is  voidable.  The  courts  have,  however, 
repeatedly  held  to  be  valid  a  lease  conveying  home- 
stead if  the  wife  signs  and  acknowledges.  Such 
a  lease  does  convey  an  interest  in  land,  does  re- 
quire the  joinder  of  the  wife,  but  it  is  not  voidable 
as  being  an  option,  for  the  simple  reason  that  the 
estate  vests  upon  delivery  of  the  instrument. 

Our  courts  have  not,  as  yet,  clearly  recognized 
principles  which  will  prevent  continued  confusion. 
In  some  cases  it  is  held  that  the  ordinary  lease  must 
be  in  writing,  for  it  is  a  conveyance  of  an  interest 
in  land;  in  others  it  is  held  that  the  ordinary  lease 


62  INNOCENT  PURCHASER 

is  voidable  as  to  homestead  if  the  wife  does  not 
join,  for  it  is  a  conveyance  of  the  homestead,  an 
interest  in  land ;  every  court  passing  on  the  question 
holds  that  if  the  wife  joins  in  the  lease,  it  is  valid 
as  to  homestead.  Apparently  forgetting  the  reasons 
for  these  decisions,  these  same  courts  likewise  hold 
that  the  ordinary  lease  is  a  mere  option,  a  right  to 
acquire  an  interest  in  land,  that  title  is  inchoate, 
and  the  lease  does  not  convey  an  interest  in  land.  If 
the  ordinary  lease  is  no  more  than  an  option  to 
acquire  an  interest,  then  no  valid  lease  can  be  had 
upon  homestead.  The  cases  cannot  be  reconciled. 
Only  one  theory  can  be  upheld.  Either  the  lease 
conveys  a  present  legal  title  or  it  does  not.  It  can- 
not be  treated  as  a  conveyance  when  dealing  with 
homestead,  and  as  a  mere  option  when  dealing  with 
innocent  purchaser.  It  must  be  eventually  held 
that  the  lease  conveys  a  present  legal  estate—a 
profit  a  prendre. 

LEASE  AS  INTERFERENCE  WITH  USE  OF 
HOMESTEAD. 

There  is  another  phase  of  the  homestead  ques- 
tion which  may  properly  be  discussed  here.  Many 
lawyers  express  the  opinion  that  a  lease  covering 
homestead  is  void,  as  to  a  nonjoining  wife,  upon  the 
theory  that  operations  will  unreasonably  interfere 
with  the  use  of  the  homestead.  This  idea  is  ex- 
pressed in  the  case  of  Southern  Oil  Co.  v.  Colquitt, 
69  S.  W.  169.  The  statute,  however,  says  nothing 
about  requiring  the  wife  to  join  whenever  unreas- 
onable interference  with  the  use  of  the  homestead 
will  result.  It  seems  that  if  a  lease  is  a  conveyance 
of  homestead,  then  the  wife  must  join.  If  it  is  not 
a  conveyance  and  passes  no  title,  then  she  need 
not  join,  irrespective  of  the  question  of  interference. 
In  the  Colquitt  case  the  instrument  before  the  court 
was  construed  as  a  deed,  or  as  a  conveyance  of 


OF  OIL  AND  GAS  LEASE  63 

minerals  in  place.  So  it  was  properly  held  that 
the  wife  should  join,  and  it  became  immaterial 
whether  or  not  operations  would  interfere  with 
the  use  of  the  homestead.  Necessity  of  the  joinder 
of  the  wife  arose  because  the  instrument  was  a 
deed,  not  because  of  interference  resulting. 

In  fact,  our  courts  hold  that  even  a  conveyance 
of  an  interest  in  the  homestead,  a  conveyance  of  a 
legal  estate,  is  valid  as  to  the  non-joining  wife,  if 
unreasonable  interference  with  enjoyment  of  home- 
stead does  not  result.  Randall  v.  Ry.  Co.,  63  Tex. 
586;  Ry.  Co.  v.  Titterington,  84  Tex.  218;  Engle- 
hardt  v.  Batla,  31  S.  W.  324;  Texas  Ry.  Co.  v.  Hall, 
24  S.  W.  324 ;  Orrick  v.  Ft.  Worth,  32  S.  W.  443 ; 
City  of  Houston  v.  Bammell,  115  S.  W.  661;  Purdie 
v.  Stephenville,  144  S.  W.  364. 

In  the  case  of  Ry.  Co.  v.  Titterington,  a  right  of  way 
deed  to  the  railway  company  was  assailed  on  the 
ground  that  the  acknowledgment  of  the  wife  was 
defective.  This  fact  clearly  appeared,  so  the  effect 
was  the  same  as  if  the  husband  alone  had  executed 
the  instrument.  The  court  held  that  the  instrument 
was  a  deed,  and  passed  title  to  the  land  included  in 
the  right  of  way,  and  that  there  was  no  reversion 
if  the  right  of  way  was  ever  abandoned.  The 
court  said: 

"It  is  the  settled  law  in  this  state  that  the 
husband  alone  may  convey  a  part  of  a  com- 
munity homestead  to  a  railway  company  for  a 
right  of  way,  provided  such  conveyance  does 
not  operate  to  interfere  with  the  enjoyment  of 
the  homestead  by  the  wife.  It  was  shown  that 
the  right  of  way  does  not  in  this  instance  dis- 
turb the  homestead  right  or  use.  Randall 
vs.  Ry.  Co.,  63  Tex.  586.  We  conclude  for 
this  reason  that  the  deed  in  question  was  not 
void." 


64  INNOCENT  PURCHASER 

This  case  has  been  followed  a  number  of  times^ 
so  the  question  is  settled  in  Texas  that  the  hus- 
band alone  may  convey  an  interest  in  the  home- 
stead (if  homestead  is  his  separate  property  or 
community)  unless  an  unreasonable  interference  re- 
sults. Of  course,  if  the  homestead  is  on  the  separ- 
ate property  of  the  wife,  it  is  necessary  that  she 
sign  and  acknowledge.  The  statute  with  respect 
to  conveyance  of  the  separate  property  of  the  wife 
would  be  applicable,  as  well  as  the  homestead 
statute. 

It  must  also  be  remembered  that,  when  opera- 
tions are  conducted  under  an  oil  lease,  the  land- 
owner is  not  dispossessed.  The  lessee  is  given  ex- 
clusive possession  only  to  the  extent  necessary  to 
carry  on  operations,  and  it  is  common  knowledge 
that  drilling  is  rarely  so  intensive  that  there  is  any 
unreasonable  interference  with  the  use  and  enjoy- 
ment of  the  homestead.  Indeed,  it  may  be  said 
that,  when  oil  underlies  the  homestead,  the  most 
beneficial  use  of  the  homestead  is  made  by  pro- 
ducing oil;  therefore  operations,  instead  of  inter- 
fering with  the  use  of  the  homestead,  are  nothing 
but  the  use  itself,  and  the  best  use.  A  rural  home- 
stead is  more  than  a  place  to  live;  it  is  a  place  to 
make  a  living,  and  the  husband  should  adopt  that 
use  which  brings  the  greatest  income.  It  would  be 
foolish  to  say  that  a  homestead  should  be  used 
solely  for  agricultural  purposes,  when  great  mine- 
ral wealth  was  to  be  had. 

If  it  should  be  finally  established  in  Texas  that 
a  lease  does  not  create  any  present  estate,  but  is 
simply  an  operating  contract,  then  the  courts  will 
have  to  dispose  of  this  line  of  reasoning  in  an 
effort  to  nullify  a  lease  on  homestead  not  executed 
by  the  wife.  If  it  becomes  reasonably  certain  that 
oil  can  be  produced  on  the  homestead  in  paying 
quantities,  it  would  seem  to  be  the  duty  of  the  hus- 


OF  OIL  AND  GAS   LEASE  65 

band  to  make  use  of  the  opportunity  for  a  greatly 
increased  revenue  from  the  land.  Surely  the  hus- 
band has  the  right  to  purchase  necessary  drilling 
appliances,  to  hire  the  necessary  labor,  and  to 
drill  the  well.  Would  anyone  argue  that  the  wife 
could  enjoin  the  husband  from  drilling  on  the  home- 
stead any  more  than  she  could  enjoin  him  from 
purchasing  a  threshing  machine,  or  from  hiring 
men  to  harvest  a  wheat  crop?  The  husband,  there- 
fore, has  the  right  to  drill.  What  he  can  do  him- 
self, he  may  do  by  agents.  He  can  contract  with 
some  driller  and  agree  to  pay  for  the  services  by 
delivering  to  the  driller  a  part  of  the  oil,  just  as  he 
has  the  right  to  pay  the  owner  of  a  rented  threshing 
machine  by  delivering  part  of  the  wheat.  If  the 
oil  lease  is  not  a  conveyance  of  an  estate,  but  is 
simply  a  drilling  contract,  then  the  husband  alone 
can  make  the  contract,  and  the  question  of  inter- 
ference with  the  use  of  the  homestead  cannot 
arise. 

Again,  many  leases  contain  a  provision  that  no 
well  shall  be  drilled  closer  than  two  hundred  feet 
of  any  building  on  the  land.  This  provision  pro- 
tects the  home  proper,  and  constitutes  an  acknowl- 
edgement on  the  part  of  the  husband  and  wife 
that  their  use  of  the  home  or  homestead  will  not 
be  unreasonably  interfered  with  if  operations  are 
conducted  outside  the  limited  area.  Having  so 
agreed,  is  a  Court  authorized  to  hold  that,  in  order 
to  prevent  unreasonable  interference,  the  radius 
of  the  reserved  land  should  be  three  hundred  feet, 
instead  of  two  hundred  feet? 

Adopting  the  rule  stated  in  the  Titterington 
case,  even  though  an  oil  lease  is  a  conveyance  of 
a  part  of  the  homestead,  or  a  conveyance  of  an 
interest  in  land,  it  is  valid  as  against  a  non-joining 
wife,  if  operations  do  not  materially  interfere  with 
the  use  and  enjoyment  of  the  homestead.  Just 


66  INNOCENT  PURCHASER 

where  reasonable  interference  ends  and  unreason- 
able interference  begins,  is  yet  to  be  decided  or 
even  to  be  discussed.  In  the  Colquitt  case  the 
Court  simply  assumes  that  operations  would  bring 
about  unreasonable  interference.  Is  not  this  a  ques- 
tion for  the  jury,  for,  under  the  decisions  cited 
above,  the  burden  is  upon  the  wife  to  show  unreas- 
onable interference  before  the  instrument  can  be 
declared  void  as  to  her? 

IF  THE  ORDINARY  MINERAL  LEASE  CREATES 
N     ANY  ESTATE,  IT  IS  A  LEGAL  ESTATE, 
AND  THE  LESSEE  HAS  A  LEGAL 
TITLE. 

This  proposition  needs  no  discussion.  The  es- 
tate or  title  is  created  and  evidenced  by  an  instru- 
ment in  writing  taken  from  the  record  owner  and, 
obviously,  it  is  not  an  equitable  title  or  estate.  See 
Patty  v.  Middleton,  82  Tex.  586,  Gilmore  v.  O'Neil, 
107  Tex.  18 ;  173  S.  W.  203,  and  Hennessy  vs.  Blair, 
107  Tex.  39;  173  S.  W.  871.  In  the  Hennessy  case 
Justice  Phillips  said: 

"As  used  in  respect  to  bona  fide  purchasers, 
the  word  'title'  has  no  reference  to  what  may 
be  the  real  beneficial  interest  of  the  vendor  as 
disclosed  by  extrinsic  proof.  It  has  relation 
merely  to  what  constitutes  the  evidence  of  his 
right.  Patty  vs.  Middleton,  82  Texas  586,  17 
S.  W.  909.  As  is  clearly  explained  in  that 
case,  if  this  were  not  so,  there  could  be  no  in- 
stance of  an  innocent  purchaser  unless  the 
vendor  were  in  fact  invested  with  the  beneficial 
interest.  As  used  in  this  sense,  therefore, 
'title'  does  not  mean  the  beneficial  interest  in 
the  property  conveyed.  It  means  such  writ- 
ten evidence  as  under  the  laws  of  the  State 
confers  upon  the  vendor  the  legal  estate  in  the 


OF  OIL  AND  GAS  LEASE  57 

land.  Nothing  else  appearing,  this  constitu- 
tes a  legal  title  in  the  vendor, — the  apparent 
title,  upon  which  the  good  faith  purchaser  may 
rely,  though  as  between  himself  and  others  the 
vendor  may  have  no  actual  right  to  the  land. 
The  question  is  not  one  of  real  beneficial  own- 
ership or  of  superior  right,  but  of  apparent 
ownership  evidenced  as  the  law  requires  owner- 
ship to  be.'  Idem." 

SINCE  LESSEE  HAS  LEGAL  TITLE,  OR  AT  LEAST 
AN  EQUITABLE  TITLE  SUBJECT  TO  REG- 
ISTRATION LAWS,  THE  DEFENSE  OF 
INNOCENT  PURCHASER 
SHOULD  NOT  BE 
DENIED. 

The  Teel  case  announced  the  rule  that  only  the 
purchaser  of  a  legal  title,  as  distinguished  from 
the  purchaser  of  an  equitable  title,  could  take  ad- 
vantage of  the  defense  of  innocent  purchaser.  This 
seems  to  be  the  general  rule.  As  often  pointed 
out,  the  reason  the  purchaser  of  an  equitable  title 
is  not  protected  is  because  he  knows  there  is  an 
outstanding  legal  title,  and  he  buys  subject  to  such 
title.  This  theory  cannot  apply  to  a  lease.  There 
is  nothing  about  a  lease,  as  there  is  with  reference 
to  an  equitable  title,  to  indicate  that  a  lessor  or 
lessee  has  no  title,  or  that  equities  are  outstanding. 

The  rule  that  only  the  purchaser  of  a  legal 
title  is  protected  does  not  prevail  in  Texas,  be- 
cause the  registration  statutes  have  brought  about 
modifications  and  exceptions  to  the  general  rule 
which  was  formulated  by  the  equity  courts  in  Eng- 
land and  was  unaffected  by  any  registration  statutes. 
The  registration  laws  in  Texas  apply  to  most  equit- 
able titles  as  well  as  to  legal  titles,  and  the  courts 
have  therefore  modified  the  old  equity  rule  to  the 


68  INNOCENT  PURCHASER 

extent  of  holding  that  the  purchaser  of  an  equitable 
title,  to  which  the  registration  laws  are  applicable, 
is  protected  in  similar  manner  as  a  purchaser  of  a 
legal  title.  This  was  clearly  held  in  Batts  v.  Scott, 
37  Tex.  59;  Johnson  v.  Newman,  43  Tex.  628, 
641;  Texas  Mfgrs.  Ass'n.  v.  Dublin,  38  S.  W.  409, 
all  decided  after  the  case  of  York  v.  McNutt,  16 
Tex.  14,  which  is  the  only  Texas  authority  cited 
in  support  of  the  rule  as  announced  in  the  Teel 
case.  For  some  reason,  the  opinion  in  the  Teel 
case  ignores  these  decisions  which  seem  to  overrule 
York  vs.  McNutt.  There  are  many  cases  which 
recognize  the  exception,  but  do  not  in  words  call 
it  an  exception  to  the  general  rule. 

It  is  settled,  beyond  all  question,  in  Texas  that 
where  a  deed  is  made  and  a  lien  reserved  in  the 
deed  to  secure  the  purchase  money  notes,  the  sale 
is  executory  and  the  legal  title  does  not  pass  to  the 
grantee.  The  legal  title  remains  in  the  grantor 
until  all  notes  are  paid,  and  this  legal  title  is  the 
superior  title.  See  Simpkins  on  Equity,  page  387, 
and  cases  cited.  At  most,  the  grantee  has  an 
equitable  title  or  an  equity,  nevertheless,  this  gran- 
tee is  protected  as  an  innocent  purchaser  against 
outstanding  titles,  encumbrances,  or  equities.  If 
the  Teel  case  is  to  be  blindly  followed,  with  refer- 
ence to  the  declaration  that  only  the  purchaser  of  a 
legal  title  can  defend  as  innocent  purchaser,  then 
clearly  the  grantee  in  a  deed  in  which  a  lien  is  re- 
served cannot  defend  as  an  innocent  purchaser,  nor 
can  any  subsequent  grantee  be  protected  against 
secret  titles  or  equities.  There  are  many  cases  in 
Texas  which  hold  that  a  grantee  under  such  a  deed, 
which  is  really  only  a  contract  for  title  or  an  exec- 
utory sale,  can  defend  as  innocent  purchaser.  The 
only  question  which  arises  under  these  cases  is  the 
character  of  protection  which  will  be  afforded, 
inasmuch  as  the  grantee  has  not  paid  all  the  con- 


OF  OIL  AND  GAS  LEASE  69 

federation.  Durst  v.  Daugherty,  81  Tex.  650. 
In  connection  with  the  rule  of  pro  tanto  protection, 
which  is  discussed  hereafter  and  fully  covered  in 
the  Durst  case,  it  will  be  seen  that  the  grantee  is 
protected  as  a  bona  fide  purchaser  in  accordance 
with  the  facts  existing.  Sometimes  the  title  of  the 
grantee  is  divested  and  the  cash  paid  by  him  is 
returned  and  the  notes  are  cancelled.  Sometimes 
the  equities  require  the  confirmation  of  the  deed 
upon  payment  of  the  notes.  Sometimes  the  gran- 
tee is  given  part  of  the  land  and  his  title  divested  as 
to  the  balance.  The  point  is,  the  grantee  is  pro- 
tected as  an  innocent  purchaser,  although  he  does 
not  have  a  legal  title. 

It  is  now  well  settled  that  the  title  which  vests 
in  children  upon  the  death  of  their  mother  is  an 
equitable,  not  a  legal  title,  and  therefore  one  who 
purchases  from  the  surviving  husband,  having 
record  title,  should  be  protected  from  the  equi- 
table title  of  the  children,  of  which  he  had  no 
notice.  Patty  v.  Middleton,  82  Tex.  586;  Sanborn 
v.  Schuler,  86  Tex.  116;  Daniel  v.  Mason,  90  Tex. 
240.  Although  it  is  the  general  rule  that  a  pur- 
chaser of  an  equitable  title  cannot  claim  protection 
as  an  innocent  purchaser,  and,  although  the  Patty- 
Middleton  case  definitely  established  the  principle 
that  a  title  inherited  by  a  child  was  an  equitable 
title,  nevertheless  in  Branch  v.  Wiess,  57  S.  W. 
901,  it  was  held  that  one  who  purchased  an  equit- 
able title  from  children  would  be  protected  as 
against  an  unrecorded  deed  from  the  ancestor. 
The  purchaser  of  an  equitable  title  was,  therefore, 
protected  as  against  a  prior  legal  title.  This  case 
was  approved  in  Leonard  v.  Lumber  Co.,  181  S.  W. 
797.  The  cases  of  Taylor  v.  Harrison,  47  Tex. 
454,  459,  Zimpleman  v.  Robb,  53  Tex.  274,  282, 
and  Greer  v.  Willis,  81  S.  W.  1185,  likewise  deal 
with  purchasers  from  heirs.  See  Simkins  on  Equity, 


70  INNOCENT  PURCHASER 

page  652,  discussing  right  of  purchaser  of  equitable 
title  to  defend  as  innocent  purchaser,  and  it  is 
clearly  shown  that  the  defense  of  innocent  purcha- 
ser is  available  to  the  purchaser  of  an  equit- 
able title  to  which  the  registration  laws  are 
applicable.  See  also  Holmes  v.  Johns,  56 
Tex.  41,  Keenan  v.  Burkhardt,  162  S.  W.  483. 

Our  Supreme  Court,  in  the  case  of  Texas  Co. 
v.  Daugherty,  107  Tex.  226,  176  S.  W.  717,  says 
that  the  instrument  involved  in  the  case  of  National 
Oil  Co.,  v.  Teel  was  a  mere  option,  because  for 
a  nominal  consideration  (the  real  consideration 
being  development)  the  lessee  was  given  the  right 
to  develop,  but  was  under  no  obligation  to  do  so, 
and  no  time  limit  was  fixed,  therefore  the  land- 
owner really  created  nothing  but  a  revocable  privi- 
lege or  license  which  would  ripen  into  an  estate 
(often  called  license  coupled  with  an  interest),  up- 
on development  prior  to  revocation.  The  Teel 
case  was  therefore  correctly  decided,  for  clearly 
the  lessee  had  nothing  but  an  option,  and  not  an 
enforceable  option,  and  acquired  no  interest  in  the 
land  until  the  consideration  for  the  license  was 
paid  by  development  on  the  property,  and  this  con- 
dition was  clearly  shown  by  the  instrument  its- 
elf. The  Teel  case  does  not,  however,  recognize 
the  rule  that  a  purchaser  of  an  equitable  title,  to 
which  the  registration  laws  are  applicable,  is  pro- 
tected against  secret  equities  or  titles,  whether 
legal  or  equitable. 

CASES  FOLLOWING  TEEL  CASE. 

Aurelius  v.  Stewart,  219  S.  W.  863,  by  Fort 
Worth  Court  of  Appeals. 

The  landowner,  Ward,  contracted  in  writing  to 
sell  land  to  Stewart.  This  contract  was  not 
recorded.  Ward  refused  to  convey,  and  leased 


OF  OIL  AND  GAS  LEASE  71 

the  land  to  the  Maude  Oil  &  Gas  Company  for 
valuable  consideration,  but  such  Company  had  no- 
tice of  the  contract  between  Ward  and  Stewart. 
Subsequently,  for  five  thousand  dollars,  and  with- 
out notice  of  the  contract,  Aurelius  purchased  the 
lease  from  the  Maude  Oil  &  Gas  Company.  Stewart 
sued  Ward  for  specific  performance,  and  eventually 
obtained  a  deed.  Stewart  then  sued  Aurelius  to 
cancel  the  lease,  and  Aurelius  defended  as  innocent 
purchaser.  The  Court,  in  its  original  opinion,  up- 
held the  lease,  apparently  upon  the  theory  that  it 
was  sufficient  to  convey  title  to  the  minerals  in 
place,  and  therefore  the  assignee,  Aurelius,  ac- 
quired a  legal  estate,  and  could  defend  as  innocent 
purchaser.  The  instrument  itself  is  not  shown  in 
the  opinion.  On  motion  for  rehearing,  it  was 
held  that,  since  the  Maude  Oil  &  Gas  Company  had 
notice  of  the  contract  between  Ward  and  Stewart, 
and  since  the  lease  was  of  the  optional  type,  there- 
fore, under  the  Teel  case,  Aurelius,  as  assignee, 
could  not  defend  as  innocent  purchaser.  This  de- 
cision is  subject  to  just  criticism.  In  the  first  place, 
Stewart,  under  the  contract  with  Ward,  did  not 
acquire  any  title.  He  had  none  until  he  sued  for 
specific  performance,  and  obtained  a  deed.  In 
reality,  the  conflict  was  between  a  contract  for 
a  deed  and  between  a  lease.  At  most,  only  equit- 
able titles  or  rights  were  in  conflict  and,  as  will  be 
discussed  hereafter,  it  seems  that  the  lease  should 
have  been  upheld,  inasmuch  as  the  assignee  thereof 
had  the  better  equity,  as  Stewart,  by  failure  to 
place  his  contract  of  record  (and  it  was  subject  to 
the  registration  statutes) ,  created  a  condition  which 
misled  Aurelius  and  caused  him  innocently  to  pay 
five  thousand  dollars  for  the  lease.  Aurelius,  as  the 
most  innocent,  should  have  been  protected.  Fur- 
ther, the  lease  certainly  created  an  equitable  title 
or  right  which  was  subject  to  registration,  and 
should  be  protected  as  if  a  legal  title. 


72  INNOCENT  PURCHASER 

Again,  assuming  that  the  lease  was  in  the  usual 
form,  and  based  upon  valuable  consideration  and 
with  a  definite  time  limit,  the  instrument  was  en- 
tirely different  from  that  involved  in  the  Teel  case. 
The  instrument,  on  its  face  and  as  a  matter  of  fact, 
was  based  upon  a  valuable  consideration,  and 
development  was  not  the  real  consideration.  The 
right  to  develop  and  to  hold  the  land  for  the  de- 
finite period  vested  upon  delivery  of  the  instrument. 
A  legal  estate  was  created,  not  a  mere  option,  as  in  the 
Teel  case.  Aurelius  innocently  purchased  the  lease 
for  five  thousand  dollars;  he  purchased  a  legal 
estate,  and  he  should  have  been  protected,  re- 
gardless of  the  notice  by  his  assignor  of  the  contract 
between  Ward  and  Stewart. 

Hitson  v.  Oilman,  220  S.  W.  140,  by  Fort  Worth 
Court  of  Appeals. 

In  this  case  the  Teel  case  was  also  followed. 
Hitson,  for  a  recited  consideration  of  one  dollar, 
which,  however,  was  not  paid,  executed  the  ordi- 
nary lease  to  Oilman  who,  in  turn,  assigned  it  to 
various  parties.  Hitson  sued  to  cancel,  and  the 
assignees  defended  as  innocent  purchasers.  The 
Court  denied  the  defense  on  the  theory  that  the 
lease,  because  of  lack  of  consideration,  was  not 
binding  as  between  Hitson,  the  lessor,  and  Gilman, 
the  lessee,  and  inamuch  as  the  lessee  at  most  ac- 
quired only  a  mere  option,  his  assignee  could  not 
defend  as  innocent  purchaser.  It  was  true  that, 
as  between  Hitson  and  Gilman,  the  instrument  was 
a  mere  option,  because  not  based  upon  considera- 
tion, and  the  lease  was,  therefore,  revocable  at  any 
time  prior  to  development,  or  at  least  was  revocable 
at  the  end  of  any  period  for  which  rental  had  been 
accepted.  As  to  the  assignees,  however,  the  situa- 
tion was  entirely  different.  The  lease  recited  con- 
sideration and  was  for  a  definite  period  of  five 
years  and,  therefore,  under  the  authorities,  which 


OF  OIL  AND  GAS  LEASE  73 

will  hereafter  be  discussed,  Hitson  should  have 
been  estopped,  as  far  as  the  assignees  were  con- 
cerned, to  deny  the  lack  of  consideration.  The 
lease  on  its  face  recited  consideration  and  purported 
to  vest  a  legal  estate  in  the  lessee,  a  profit  a  pren- 
dre,  and  the  assignee  who,  for  a  valuable  considera- 
tion, innocently  purchased  this  lease,  should  have 
been  protected.  Even  assuming  that  no  legal  es- 
tate was  created  by  the  instrument,  then  the  as- 
signee should  have  been  protected  as  having  the 
better  equity,  and  as  having  been  misled  by  the 
lease  executed  to  Oilman,  and  further,  because  the 
title  which  he  purchased  was  subject  to  registra- 
tion laws,  and  the  defense  of  innocent  purchaser 
should  not  have  been  denied. 

Varnes  v.  Dean,  228  S.  W.  1017,  by  Fort  Worth 
Court  of  Appeals: 

In  this  case  it  appeared  that  no  consideration 
was  paid  by  the  lessee  for  the  lease,  though  the 
instrument  recited  a  consideration  of  one  dollar. 
The  lease  was  purchased  by  Varnes  for  valuable 
consideration,  and  without  any  notice  of  the  fraud 
practiced  in  obtaining  the  lease  from  Dean,  who 
was  the  landowner,  and  without  any  notice  of  the 
fact  that  no  consideration  had  been  paid  to  the 
lessor.  The  lessor  sued  to  cancel  the  instrument, 
and  the  case  was  reversed  because  of  a  defective 
charge,  but  the  Court  discusses  somewhat  the  inno- 
cent purchaser  question,  saying  that,  since  no  con- 
sideration had  been  paid  to  the  lessor,  not  even  the 
one  dollar,  and  since  the  lease  was  procured  by 
fraud,  "we  are  constrained  to  hold  that  the  lease 
here  under  consideration  should  be  controlled  by 
the  rule  laid  down  in  the  Teel  case,"  to  the  effect 
that  an  assignee,  under  such  circumstances,  cannot 
defend  as  innocent  purchaser. 

What  has  been  said  with  respect  to  the  Hitson 


74  INNOCENT  PURCHASER 

and  Aurelius  cases  applies  equally  here.  Dean, 
having  executed  an  instrument  reciting  considera- 
tion, should  have  been  estopped,  as  far  as  Varnes 
was  concerned,  to  show  lack  of  consideration. 
Varnes,  therefore,  purchased  a  lease  for  valuable 
consideration  other  than  development,  which  lease 
was  for  a  definite  term.  The  instrument  on  its  face 
created  a  present  legal  estate,  not  a  mere  option, 
and  he  had  the  right  to  defend  as  innocent  pur- 
chaser. Admitting,  however,  that  fraud  was  prac- 
ticed upon  the  lessor,  it  is  also  true  that  Varnes 
was  innocent,  and  more  innocent  than  Dean,  for 
Dean  created  a  condition  which  misled  Varnes. 
Varnes  should  have  been  protected. 

COMMON  ERROR  IN  CASES  DISCUSSED. 

In  view  of  the  fact  that  it  is  now  generally  held 
that  even  one  dollar  will  support  a  lease  as  well 
as  a  conveyance  and  that  one  dollar  is  a  valuable 
consideration,  and  that  even  under  a  one  dollar 
lease  the  true  consideration  is  not  development,  and 
the  lessor,  when  he  executes  the  lease,  knows  that 
the  property  may  never  be  developed  but  is  wil- 
ling to  take  a  chance  that  the  lessee  will  enter  and 
discover  minerals  in  paying  quantities — then  I  am 
unable  to  see  how  the  doctrine  announced  in  the 
Teel  case  can  apply  to  leases  of  the  character  men- 
tioned. Owen  v.  Corsicana  Pet.  Co.,  222  S.  W. 
(Sup.)  154;  Aycock  v.  Reliance  Co.,  210  S.  W. 
848;  Jackson  v.  Pure  Oil,  217  S.  W.  959;  Emde 
v.  Johnson,  214  S.  W.  575 ;  Hunter  v.  Gulf  Production 
Co.,  220  S.  W.  163;  McKay  v.  Talley,  220  S.  W. 
167.  The  Teel  case,  at  least  as  construed  by  the 
Supreme  Court  in  the  Daugherty  case,  is  no  authori- 
ty for  designating  the  ordinary  lease  as  a  mere 
option,  because,  under  the  ordinary  lease,  which 
is  based  upon  a  valuable  consideration,  the  true 
consideration  not  being  development,  and  a  defi- 


OF  OIL  AND   GAS  LEASE  75 

nite  time  limit  is  fixed,  the  lessee  acquires  an  irre- 
vocable and  exclusive  right  during  the  term  of  the 
lease  to  prospect  for  minerals,  and  this  right  vests 
upon  delivery  of  the  instrument,  and  the  estate 
thereby  created  cannot  be  terminated  by  the  lessor 
at  will,  or  prior  to  development,  as  was  the  right 
of  the  lessor  in  the  Teel  case.  It  must  be  remem- 
bered that  in  the  Teel  case  the  Court  said: 

"If  Nicholson  and  Mundy  (lessee  and  as- 
signee) had  so  complied  (exercised  the  privi- 
lege of  development)  when  the  latter  made  the 
sales  to  the  defendant  companies,  their  posi- 
tions may  have  been  different." 

This  language  means  that  if  the  lessee  had  en- 
tered and  commenced  operations,  he  would  have 
thereby  paid  consideration,  and  a  revocable  license 
would  have  ripened  into  a  license  coupled  with  an 
interest,  being  an  estate  in  land;  and  having  an 
estate  in  land,  the  defense  of  innocent  purchaser 
could  have  been  asserted. 

Does  it  not  follow  that,  where  real  considera- 
tion is  paid,  and  the  real  consideration  is  not  de- 
velopment, the  lessee  acquires  an  interest  in  land — 
a  legal  estate — upon  delivery  of  the  instrument? 
The  right  to  develop,  which  the  lessor  cannot  re- 
voke during  the  term  of  the  instrument,  in  an 
estate  and  it  vests  at  once,  and  is  not  postponed 
until  drilling  is  begun.  As  pointed  out  heretofore, 
it  may  be  true  that  no  title  or  estate  in  the  oil  and 
gas  vests  until  they  are  brought  to  the  surface, 
nevertheless  the  right  to  prospect  for  these  minerals 
is  an  estate,  an  interest  in  land,  which  vests  upon 
delivery  of  the  lease,  and  should  be  protected,  and 
it  has  been  so  held  by  the  Supreme  Court  and  one 
of  the  Courts  of  Civil  Appeals,  as  is  disclosed  by 
the  following  discussion. 


76  INNOCENT  PURCHASER 

TEXAS  CASES  HOLDING  LESSEE  CAN  BE  INNO- 
CENT PURCHASER. 

There  are  two  cases  in  Texas  holding  that  a 
lessee  can  assert  the  defense  of  innocent  purchaser, 
but  for  some  reason  there  cases  have  not  been  cited 
or  discussed  by  the  courts  in  those  cases  denying  the 
defense. 

COURT  OF  CIVIL  APPEALS. 

The  case  by  the  Court  of  Civil  Appeals,  being 
the  earlier  decision,  will  be  discussed  first.  In  Fox 
v.  Robbins,  62  S.  W.  815,  decided  in  1901,  it  ap- 
peared that  a  judgment  was  obtained  by  fraud. 
The  land  was  sold  under  foreclosure  proceedings, 
and  the  purchaser  leased  the  land  for  oil  purposes 
to  W.  H.  Staley,  who  had  no  notice  of  any  fraud 
practiced  in  procuring  the  judgment.  The  judgment 
and  foreclosure  proceedings  were  regular  on  their 
face.  The  instrument,  designated  as  a  lease,  was 
treated  by  the  Court  as  having  been  obtained  with- 
out payment  of  valuable  consideration,  and  it  was 
stated  that  the  real  consideration  for  the  execution 
of  the  instrument  was  development.  Assuming  that 
this  construction  was  correct,  then  the  situation  was 
the  same  as  in  the  Teel  case,  and  Statley  only  ac- 
quired a  license,  and  the  right  to  develop  would 
become  a  vested  right  only  when  operations  were 
begun,  thereby  supplying  the  lack  of  considera- 
otin.  It  appeared  that  Statley  entered  on  the 
land  and  drilled  wells,  the  production  from  which 
exceeded  in  value  the  expenses  of  drilling  and  oper- 
ating. The  Court  recognized  the  equities  of  Staley, 
and  held  that  he  was  an  innocent  purchaser  for  val- 
ue, but  should  be  protected  only  to  the  extent  of 
his  expenditures,  plus  allowance  for  time  and  labor, 
thereby  placing  him  in  statu  quo.  In  reality,  the 
doctrine  of  innocent  purchaser  was  not  applied, 
but  the  doctrine  of  improvements  and  expenditures 


OF  OIL  AND  GAS  LEASE  77 

in  good  faith,  or  the  doctrine  as  applicable  to  an 
innocent  trespasser.  If  the  Texas  cases,  includ- 
ing the  Teel  case,  hold  that  where  a  lessee  en- 
ters and  drills,  and  certainly  after  production  is 
acquired,  he  has  an  estate  in  lands,  (even  if  he  did 
not  have  it  before)  and  this  estate  is  a  legal  estate, 
it  should  follow  that  a  lessee  under  such  circum- 
stances should  be  protected  as  any  other  pur- 
chaser, and  should  be  able  to  hold  his  lease. 

Indeed,  there  is  more  reason  to  protect  the 
lease  innocently  acquired  than  there  is  to  protect 
a  fee  title.  The  lessee  by  his  foresight  and  skill 
and  by  the  expenditure  of  a  large  amount  of  money 
proves  the  value  of  the  property  at  the  chance  of 
drilling  a  dry  hole.  He  would  not  be  protected 
by  returning  the  expenditures,  because  he  can- 
not get  as  good  a  lease  in  the  vicinity  on  the  same 
terms,  and  therefore  he  cannot  be  placed  in  statu 
quo. 

Again,  let  us  assume  that  the  lease  covers  a  tract  of 
five  hundred  acres,  and  it  is  assigned  to  one  who  pur- 
chases for  value,  and  with  no  notice  of  outstanding 
titles  or  equities.  The  assignee  drills  a  dry  hole 
at  an  expense  of  fifty  thousand  dollars  in  the 
northwest  corner  of  the  tract.  A  ten  thousand 
barrel  well  is  then  brought  in  near  the  southwest 
corner  of  the  property,  making  it  almost  certain  that 
large  well  can  be  obtained  on  the  five  hundred  acres. 
The  assignee  assembles  his  material  for  drilling  in 
the  southwest  corner,  and  the  real  owner  of  the  prop- 
erty brings  suit  to  establish  his  title  and  to  prevent 
the  drilling  of  the  well.  The  plaintiff  finally  es- 
tablishes title,  as  against  the  record  owner,  and 
the  sole  question  is  the  protection  to  which  the 
assignee  of  the  lease  is  entitled,  as  being  an  inno- 
cent purchaser.  Since  the  lessee  drilled  a  dry 
hole  in  the  northwest  corner,  it  cannot  be  said 
that  he  made  improvements  in  good  faith,  for, 


78  INNOCENT  PURCHASER 

though  he  expended  fifty  thousand  dollars,  the 
expenditures  were  worthless  except,  perhaps,  as 
indicating  the  futility  of  drilling  on  that  part  of  the 
tract.  Would  it  be  proper  to  cancel  the  lease  under 
such  circumstances? 

The  assignee  cannot  be  placed  in  statu  quo. 
The  discovery  of  oil  increases  values  to  almost 
unheard  of  limits,  and  consequently  the  assignee 
cannot  acquire  as  valuable  a  piece  of  property 
upon  the  same  consideration  that  he  paid  for  the 
lease  involved  in  the  suit.  The  only  way  he  can 
be  protected  is  to  uphold  his  lease,  substituting 
the  real  owner  for  the  original  lessor,  as  to  future 
rents  and  royalties.  The  fluctuating  value  of  oil 
lands  renders  this  the  only  way  to  adjust  equit- 
ably the  rights  of  the  parties. 

In  McKay  v.  Lucas,  220  S.  W.  172,  the  con- 
sideration for  the  lease  was  one  dollar.  It  pur- 
ported to  convey  the  minerals  and,  following  the 
Daugherty  case,  the  Court  held  that  instrument 
to  be  a  deed  upon  condition  subsequent,  though  the 
provisions,  other  than  in  the  granting  clause,  were 
the  same  as  in  an  ordinary  lease.  An  innocent 
purchaser  was  protected,  and  protected  by  up- 
holding the  lease  (or  deed),  not  by  cancelling 
it  upon  refund  of  the  consideration  paid.  The 
same  rule  was  recognized  in  Hickernell  v.  Gregory, 
224  S.  W.  691. 

Supreme  Court: 

In  1915,  the  Supreme  Court,  in  the  case  of  Gil- 
more  v.  O'Neil,  107  Tex.  18,  173  S.  W.  203,  opin- 
ion by  Justice  Phillips,  not  only  held  that  a  legal 
estate  is  created  by  the  ordinary  mineral  lease, 
but  likewise  clearly  and  unequivocally  held  that  the 
lessee  or  assignee  is  entitled  to  be  protected  as  an 
innocent  purchaser  if  the  lease  is  taken  in  good 
faith  for  a  valuable  consideration  from  the  apparent 


OF  OIL  AND  GAS  LEASE  79 

owner  of  the  property,  and  with  no  notice  of  out- 
standing titles  or  equities.  According  to  the  Su- 
preme Court,  a  lessee  or  assignee  is  placed  on  the 
same  footing  as  any  other  purchaser. 

The  Supreme  Court,  in  the  Gilmore  case,  over- 
ruled the  Teel  case,  if  the  latter  has  been  properly 
construed  by  the  Courts  of  Appeals.  If  the  Teel 
case  holds  that  the  ordinary  mineral  lease,  based 
upon  consideration,  and  for  a  definite  term,  is  not 
an  estate  in  lands  but  is  a  mere  option,  and  neither 
the  lessee  nor  any  assignee  can  defend  as  innocent 
purchaser,  then  it  has  been  overruled  by  the  Su- 
preme Court  in  the  Gilmore  case,  for  in  the  latter 
case  it  was  held  that  the  lessee  acquired  a  legal 
estate,  and  such  lessee  or  assignee  could  defend  as 
innocent  purchaser. 

The  Gilmore  case  has  not  been  cited,  and  of 
course  not  discussed,  in  those  cases  by  the  Courts 
of  Appeals  which  hold  that  a  lease  creates  a  mere 
option,  not  a  title  or  estate. 

THE  GILMORE  CASE  HAS  SIMPLY  BEEN 
OVERLOOKED. 

The  facts  in  the  Gilmore  case,  which  are  neces- 
sary to  a  thorough  understanding  of  the  decision, 
are  as  follows:  Jones,  the  record  owner,  joined 
by  his  wife,  conveyed  in  1903  to  Mrs.  Duey  a  tract 
described  as  "One  and  thirty-five  hundredths  acres 
of  land  out  of  the  Southeast  corner  of  the  fifty- 
acre  tract  sold  to  us  by  John  M.  Young  and  wife 
by  deed  dated  October  22,  1895,  and  being  a  part 
of  the  John  Brown  League,"  etc.  A  mineral  lease 
was,  on  August  1,  1908,  executed  by  Mrs.  Duey 
and  Kuhn  (who  held  under  her)  and  on  the  same 
day  this  lease  was  transferred  to  O'Neil.  The  des- 
cription in  this  lease  was  the  same  as  in  the  deed 
from  Jones  to  Mrs.  Duey — that  is,  it  purported 


80  INNOCENT  PURCHASER 

to  cover  only  1.35  acres.  On  September  17,  1908, 
Mrs.  Duey  executed  a  deed  to  O'Neil  conveying 
"1.662  acres  of  land,"  described  by  field  notes,  and 
which  included  the  strip  of  one  third  of  an  acre 
in  controversy.  It  was  shown  that  Jones  and  wife 
intended  to  convey  to  Mrs.  Duey  the  tract  of  1.662 
acres  instead  of  a  tract  of  1.35  acres,  and  by  mis- 
take the  description  was  improperly  given  in  the 
deed;  that  after  the  conveyance,  Jones  had  a 
survey  made,  and  the  parties  located  on  the  ground 
the  property  which  had  been  sold  to  Mrs.  Duey,  and 
the  tract  as  located  and  which  they  thought  had 
been  described  in  the  deed  was  a  tract  of  one  and 
two  thirds,  or  1.662  acres,  in  rectangular  form,  347 
feet  by  208.7  feet.  In  1905  Jones  conveyed  a  part 
of  the  fifty  acres  and,  in  describing  the  tract  con- 
veyed, the  field  notes  called  for  the  north  and  west 
lines  of  the  Duey  tract,  which  was  designated  as 
"Mrs.  Duey's  one  and  two-thirds  acre  tract."  Fur- 
ther, the  field  notes  in  this  deed  show  the  location 
on  the  ground  of  the  Duey  tract  as  a  rectangle  347 
feet  by  208.7  feet  in  the  southwest  corner  of  the 
fifty  acres. 

Jones  died  in  1906.  On  January  8,  1908,  Mrs. 
Jones  executed  a  mineral  lease  to  Beatty  &  Cheek, 
covering  all  the  unsold  land  in  the  fifty  acre  tract, 
and  on  May  6,  1908,  a  renewal  lease,  based  upon 
valuable  consideration,  was  taken  from  Mrs.  Jones 
and  the  Jones  heirs,  covering  "the  unsold  portions 
of  the  James  Jones  fifty-acre  tract."  This  lease 
was  assigned  to  Gilmore  and  Nicholson  in  July 
1908,  for  a  valuable  consideration. 

The  suit  was  instituted  by  Gilmere,  Nicholson, 
et  al,  and  involved  a  strip  of  one  third  of  an  acre, 
representing  that  portion  of  the  1.662-acre  tract 
which  it  was  contended  was  not  covered  in  the 
deed  to  Mrs.  Duey,  or  by  the  lease  from  her  to 
O'Neil,  which  referred  to  a  tract  of  1.35  acres. 


OF  OIL  AND  GAS  LEASE  81 

O'Neil  claimed  and  proved  that  the  strip  should 
have  been  described  in  the  deed  from  Jones  to 
Mrs.  Duey,  and  in  his  lease,  as  1.662  acres,  but 
through  mistake  the  tract  was  described  as  1.35 
acres,  not  1.662  acres.  Gilmore  and  Nicholson,  as 
assignees  of  the  Beatty  &  Cheek  lease,  claimed  that 
the  lease  had  been  secured  from  Mrs.  Jones  and  the 
Jones  heirs  covering  the  unsold  portion  of  the 
fifty  acre  tract,  and  which  would  include  the  one 
third  of  an  acre,  and  the  lease  had  been  taken  from 
the  apparent  owners  of  the  property  for  a  valua- 
ble consideration  and  with  no  notice  of  the  facts 
as  to  the  mistake  in  description,  as  claimed  by 
O'Neil.  The  Guffey  Company  claimed  an  interest, 
but  the  basis  of  its  claim  is  unimportant  on  the 
innocent  purchaser  question. 

Justice  Phillips  said: 

"It  will  simplify  the  entire  case  to  first 
determine  where  lies  the  superior  title  to  the 
land.  This  does  not  mean  the  legal  title,  but 
the  superior  title,  whether  legal  or  equitable, 
since  an  equitable  title  may  be  superior  to  the 
legal  title,  and  will  prevail  over  the  legal  title 
if  capabe  of  being  enforced  against  it.  The 
claim  of  the  plaintiffs  was  predicated  upon 
their  asserted  ownership  of  a  leasehold  sup- 
ported by  the  legal  title,  because  of  the  des- 
cription in  their  lease;  and,  in  the  discussion, 
their  interest  will  be  referred  to  as  a  legal  title 
to  the  land.  Essential  to  the  allowance  of 
their  claim  is  the  determination  that  the  des- 
cription in  their  lease  was  sufficient.  But  if 
that  is  admitted,  they  may  be  said  to  hold  the 
legal  title.  This  follows,  because  the  descrip- 
tion in  the  deed  of  Jones  and  wife  to  the  Na- 
tional Oil  and  Development  Company,  under 
which  the  Guffey  Company  holds  and  claims, 
clearly  did  not  include  the  land;  the  legal 


82  INNOCENT  PURCHASER 

title  had  not  been  conveyed  by  Jones  and  wife 
prior  to  the  death  of  Jones,  and,  therefore, 
rested  in  Mrs.  Jones  and  Jones'  heirs  at  the 
time  of  the  execution  of  the  plaintiffs'  lease; 
and  as  to  Mrs.  Jones  and  the  Jones  heirs  exe- 
cuting the  lease,  it  passed  thereby  to  Beatty 
and  cheek  if  the  land  was  therein  described. 

This  disposes  of  the  claim  of  the  Guffey 
Company.  And,  if  the  description  in  the 
lease  to  Beatty  and  Cheek  be  held  sufficient,  it 
likewise  disposes  of  the  claim  of  the  Jones 
heirs.  If  that  description  did  not  include  the 
land,  the  legal  title  remained  in  the  Jones 
heirs,  and  the  case  would  be  then  resolved  in- 
to an  issue  between  them  and  O'Neil  as  to  the 
superiority  of  their  respective  titles. 

O'Neil,  admittedly,  had  no  legal  title  to 
the  land.  Such  title  as  he  possessed  was  pure- 
ly equitable.  If  it  amounted  to  the  superior 
title,  it  was  of  course,  subject  to  enforcement 
against  any  legal  title  in  the  Jones  heirs,  de- 
rived, as  it  was,  from  their  ancestor.  And,  if 
the  superior  title,  it  would  likewise  prevail 
against  any  legal  title  in  the  plaintiffs,  unless 
they  occupied  the  position  of  innocent  pur- 
chasers. If  their  lease  did  not  describe  the 
land,  the  plaintiffs  had  no  character  of  title. 
If  it  did  describe  the  land  and  their  position 
was  that  of  innocent  purchasers,  any  equitable 
title  in  O'Neil  would  yield  to  the  legal  title 
conferred  by  the  lease,  though,  strictly  speak- 
ing, his  were  the  superior  title.  But  it  is  im- 
material whether  the  description  in  their  lease 
was  sufficient  to  invest  them  with  the  legal 
title,  if  their  rights  were  acquired  with  notice 
of  a  superior  equity  in  O 'Neil's  grantor,  after- 
wards ripening  into  title  in  his  hands." 


OF  OIL  AND  GAS  LEASE  83 

After   discussing   other   points,   Justice   Phillips 
continues : 

"Waiving  the  question  of  the  sufficiency  of 
the  description  in  the  plaintiffs'  lease,  and 
admitting  for  the  present  purpose  that  it  was 
sufficient,  was  the  title  possessed  by  O'Neil 
entitled  to  prevail  against  the  legal  title  which 
a  sufficient  description  in  their  lease  would 
have  conferred  upon  the  plaintiffs?  This  de- 
pends upon  whether  their  position  was  that  of 
innocent  purchasers  of  the  legal  title  for  value, 
without  notice  of  the  superior  equity,  or  such 
knowledge  as  reasonably  should  have  put  them 
upon  inquiry.  At  the  time  the  plaintiffs  ac- 
quired their  lease,  the  deed  of  Jones  and  wife 
to  the  National  Oil  and  Development  Com- 
pany, conveying  the  fifteen-acre  tract  to  that 
company,  had  been  of  record  for  more  than  two 
years.  That  deed  was  in  their  chain  of  title, 
and  they  were  charged  with  notice  of  its 
recitals.  Caruth  vs.  Grigsby,  57  Tex.  265.  It 
embraced  'a  sold  portion'  of  the  fifty  acre 
tract,  and  reference  to  it  was,  of  course,  neces- 
sary to  determine  what  'the  remaining  inter- 
est' in  the  tract,  or  'the  unsold  portion'  of  the 
tract  was,  in  virtue  of  which  description  it  is 
that  the  plaintiffs  claim  the  land  under  their 
lease.  It  destinctly  referred  to  the  land  sold 
by  Jones  and  wife  to  Mrs.  Duey  as  being  a 
tract  of  one  and  two-thirds  acres;  and,  calling 
for  the  north  and  west  lines  of  that  tract,  by 
measurement,  as  boundary  lines  of  the  fifteen 
acres  conveyed,  revealed,  as  has  been  before 
noted,  that  Mrs.  Duey's  land  lay  upon  the 
ground  so  as  to  include  within  its  lines,  and  ex-, 
elude  from  their  lease,  the  strip  in  controversy. 
This  could  not  amount  to  less  than  notice  to 
them  that  the  source  of  their  title  and  hers 


S4  INNOCENT  PURCHASER 

recognized,  by  an  actual  measurement  on  the 
ground,  her  right  to  the  land  in  dispute,  and, 
if  the  description  in  their  lease  embraced 
it,  that  they  were  obtaining  a  questionable 
title.  In  addition  to  this,  the  jury  found  that 
when  Beatty  and  Cheek  were  negotiating  for 
the  lease,  they  were  taken  upon  the  ground 
and  shown  that  the  land  proposed  to  be 
leased  lay  west  of  the  west  line  of  the  National 
Oil  and  Development  Company  fifteen-acre 
tract,  a  location  entirely  remote  from  this  strip ; 
and  that  Beatty  and  Cheek  accepted  the  lease 
with  the  understanding  between  themselves 
and  their  lessors,  the  heirs  of  Jones,  that  the 
land  leased  to  them  was  so  located.  This  con- 
stituted further  notice  to  the  plaintiffs  that 
the  heirs  of  Jones  recognized  that  this  strip 
was  not  'an  unsold  portion'  of  the  tract; 
necessarily,  therefore,  equivalent  to  notice,  un- 
der this  description  in  the  lease,  that  it  was 
'a  sold  portion.' 

With  their  rights  acquired  under  such  cir- 
cumstances, it  is  clear  that  the  plaintiffs  were 
not  entitled  to  be  protected  as  innocent  pur- 
chasers. This  renders  immaterial  the  question 
of  the  sufficiency  of  the  description  in  their 
lease." 

The  lease  to  Beatty  and  Cheek  is  not  shown  in 
either  the  opinion  of  the  Court  of  Appeals  or  the 
Supreme  Court.  Both  the  Courts,  however,  con- 
strued the  instrument  as  a  lease,  as  distinguished 
from  a  deed  to  minerals  in  place.  A  copy  of  the 
instrument  has  been  obtained  from  the  statement 
of  facts,  and  it  clearly  appears  that  it  does  not 
come  within  the  decision  in  the  Daugherty  case  and 
was  properly  classed  with  the  ordinary  "lease, 
demise  and  let"  lease — that  is  to  say,  it  did  not 
purport  to  pass  a  present  title  to  minerals  in  place, 


OF  OIL  AND  GAS  LEASE  gt 

but  only  gave  the  right  to  enter  and  develop,  with 
the  right  to  appropriate  all  the  minerals  produced 
except  such  part  (1-7)  as  lessees  agreed  to  pay  les- 
sors as  royalty.  The  lease  was  executed  as  a 
renewal  of  and  a  substitute  for  a  former  memoran- 
dum lease,  and  in  further  consideration  of  twenty- 
five  dollars  and  the  agreement  to  begin  the  drill- 
ing of  a  well  within  ten  days  after  delivery  of  the 
lease  and  to  prosecute  drilling  with  due  diligence. 
The  instrument,  which  was  repeatedly  designated 
by  the  parties  as  a  lease,  contains  the  usual  pro- 
visions, and  it  is  therefore  not  considered  neces- 
sary to  copy  the  instrument  in  full.  The  only  de- 
parture from  the  usual  phrasing  is  found  in  the 
granting  clause  where  this  language  is  used: 
"Grant,  sell  and  convey  unto  the  said  D.  R.  Beatty 
and  James  R.  Cheek  all  the  oil  and  gas  which 
may  be  obtained  from  or  produced  from  said 
thirty  acres  of  land  saving  and  excepting  a  one- 
seventh  of  the  amount  of  oil  produced,"  as  royalty. 

Beyond  question,  there  was  no  present  convey- 
ance of  the  oil  and  gas  in  place.  The  lessors 
simply  conveyed  to  lessee  seven-eighths  of  the  oil 
"which  may  be  obtained  from  or  produced  from" 
said  land, — a  conveyance  of  the  minerals  as  per- 
sonalty and  after  severance,  and  not  as  a  part 
of  the  land.  The  usual  lease  is  to  the  same  effect. 
The  lessee  is  given  the  right  to  enter,  develop,  and 
to  appropriate  all  of  the  minerals  which  may  be 
produced  except  that  portion  to  be  paid  as 
royalty.  Title  to  the  minerals  does  not  pass  to  the 
lessee  until  the  minerals  are  brought  to  the  sur- 
face and  reduced  to  possession. 

It  is  quite  clear,  therefore,  that  the  instrument 
under  consideration  in  the  Gilmore  case  was  a 
lease,  as  distinguished  from  a  deed  to  minerals  in 
place,  and  the  Court  of  Appeals  and  the  Supreme 
Court  so  construed  it.  As  already  pointed  out, 


86  INNOCENT  PURCHASER 

until  the  Daugherty  case  was  decided,  it  was 
generally  believed  that  minerals  could  not  be 
conveyed  in  place.  Justice  Phillips,  who  wrote  the 
opinion  in  the  Daugherty  case  only  a  month  or  so 
after  writing  the  opinion  in  the  Gilmore  case, 
did  not  in  the  Daugherty  case  cite  the  Gilmore 
case  as  holding  that  the  instrument  under  which 
Gilmore  and  Nicholson  claimed  as  assignees  of 
Beatty  and  Cheek,  was  a  deed  to  minerals  in  place 
as  distinguished  from  a  lease. 

These  comments  are  made  in  order  to  demon- 
strate beyond  question  that  the  Supreme  Court 
in  the  Gilmore  case  construed  the  instrument  under 
consideration  as  the  ordinary  and  usual  lease,  and 
therefore  the  discussion  and  the  holding  in  the  Gil- 
more  case  apply  to  the  usual  lease.  The  Supreme 
Court  held  that: 

(1)  The  usual  lease  creates  a  present  vested 
legal  estate  or  title;  and 

(2)  The  lessee  or  assignee  can  defend  as  inno- 
cent purchaser,  and  will  be  protected  against  titles 
or  equities  when  the  lease  is  taken  or  purchased  in 
good   faith   from   the   record    owner,    or   apparent 
owner,   for  a  valuable   consideration   and   without 
notice  of  any  defects  in  the  title; 

(3)  The    Teel    case   is   not   applicable   to   a 
lease     for     a     definite     term     and     based     upon 
consideration   other  than   development,   or  upon   a 
binding  agreement  to  develop.     The  Supreme  Court 
so  held,  because  the  Teel  case  is  not  cited  as  being 
in   point.     If   the   Supreme    Court   had    considered 
that  the  Teel  case  could,  by  any  sort  of  reasonable 
argument  or  construction,  be  applied  to  the  usual 
lease,  for  a  definite  term  and  upon  consideration, 
it  is  inconceivable  that  Justice  Phillips  would  have 
ignored  the  Teel  case  in  his  opinion. 


OF  OIL  AND  GAS  LEASE  87 

If  the  Teel  case  holds,  as  some  of  the  Courts 
of  Appeals  say  that  it  does,  that  the  ordinary  lease 
for  a  definite  term,  and  based  upon  consideration, 
whether  cash  or  agreement  to  develop,  creates 
nothing  but  an  option,  as  distinguished  from  an 
estate  in  or  title  to  lands  and  therefore  neither 
the  lessee  nor  assignee  can  defend  as  innocent 
purchaser,  then  the  Gilmore  case  holds  absolutely 
to  the  contrary,  and  the  Teel  case  has  been  over- 
ruled. 

LESSEE   OR   ASSIGNEE   IS  PROTECTED   IN 
OTHER  JURISDICTIONS. 

The  courts  in  other  states  treat  a  lessee  or  as- 
signee as  any  other  purchaser.  Thus,  in  Moore 
v.  Sawyer,  167  Fed.  826,  it  appeared  that  a  lease 
was  procured  by  fraud  and  sold  to  one  who  had  no 
notice  of  the  fraud.  The  court  protected  the  pur- 
chaser and  upheld  the  lease  by  applying  the  doc- 
trine of  innocent  purchaser.  See  also  Sturm  v. 
Wiess,  273  Fed.  457. 

The  Supreme  Court  of  Pensylvania,  in  Aye  v. 
Philadelphia,  44  Atl.  556,  held  that  a  second  lessee, 
as  a  bona  fide  purchaser,  would  be  protected  as 
against  a  prior  unrecorded  lease  from  the  common 
grantor.  To  the  same  effect  is  Thompson  v.  Chris- 
tie, 20  Atl.  (Pa.)  934.  Surely  a  Texas  court  would 
hold  the  same  thing,  otherwise  one  would  never 
know  whether  or  not  he  had  a  good  lease. 

The  question  was  squarely  presented  to  the 
Supreme  Court  of  the  United  States  in  the  case  of 
Waskey  v.  Chambers,  224  U.  S.  564,  56  L.  Ed.  886, 
Ann.  Gas.  1913D,  998.  Waskey  acquired  two 
leases  from  the  record  owner  of  a  mine,  and  the 
real  owners  sued  Waskey  to  recover  the  mine  and 
damages  for  ore  extracted.  Waskey  defended  as 
an  innocent  purchaser.  The  Circuit  Court,  172 


88  INNOCENT  PURCHASER 

Fed.  13,  24  L.  R.  A.  (N.  S.)  879,  denied  to  Was- 
key  the  right  to  defend  as  an  innocent  purchaser, 
but  the  Supreme  Court,  in  opinion  by  Justice  Hol- 
mes, reversed  the  decision,  saying: 

"The  act  of  Congress  reads:  'Every  con- 
veyance of  real  property  within  the  districts, 
hereafter  made,  which  shall  not  be  filed  for 
record  as  provided  in  this  chapter,  shall  be 
void  against  any  subsequent  innocent  purchaser 
in  good  faith  and  for  a  valuable  consideration 
of  the  same  real  property,  or  any  portion 
thereof,  whose  conveyance  shall  be  first  duly 
recorded.'  Act  of  June  6,  1900,  chap.  786, 
title  3,  sec.  98,  31  Stat.  at  L.  321,  505;  Code, 
pt.  5,  sec.  98.  The  circuit  court  of  appeals 
went  on  the  ground  that  a  lease  creates  only 
a  chattle  interest,  and  is  not  a  conveyance,  and 
therefore  is  not  within  the  protection  of  the 
statute.  But  it  is  obvious  that  in  principle  the 
right  of  a  lessee  is  the  same  as  that  of  a  pur- 
chaser in  fee,  and  it  would  be  a  great  mis- 
fortune, especially  to  mining  interests,  if  a 
man  taking  a  lease  from  those  whom  the  rec- 
ords showed  and  he  believed  to  be  the  owners 
were  liable,  (566)  after  spending  large  sums 
of  money  on  the  faith  of  it,  to  be  turned  out  by 
an  undisputed  claimant,  on  the  strength  of  an 
unrecorded  deed.  We  find  no  words  in  the 
statute  that  require  such  a  result.  On  the 
contrary,  the  word  'conveyance'  is  defined,  al- 
though for  other  purposes,  as  embracing  every 
written  instrument  except  a  will  by  which  any 
interest  in  lands  is  created.  Act.  1900,  title 
3,  sec.  136,  Stat.  at  L.  510,  chap.  786;  Code, 
pt.  5,  sec.  136.  See  title  2,  sec.  1046,  31  Stat. 
at  L.  493,  chap.  786;  Code  pt.  4,  sec.  1046. 
And  the  statute  providing  for  the  recording  of 
leases,  as  well  as  of  deeds  and  grants,  act  of 


OF  OIL  AND  GAS  LEASE  89 

1900,  title  1,  sec.  15,  31  Stat.  at  L.  327,  chap. 
786;  Code,  pt.  3,  sec.  15.  Blackstone  defines 
a  lease  as  a  conveyance,  2  Com.  317,  and  in 
Sheppard's  Touchstone,  267,  leases  are  ranked 
under  the  head  of  grants, — 'as  in  other  grants.' 
The  point  does  not  need  authority  except  to 
exclude  the  notion  that  the  statute  uses  the 
word  in  a  narrower  sense. 

It  is  said  that  Waskey  was  not  a  purchaser 
for  value.  By  the  lease  of  June  11,  he  agreed 
to  enter  at  once  and  work  the  mine  continuous- 
ly, and  to  pay  30  per  cent  of  the  gold  and 
precious  minerals  or  metals  extracted.  The 
other  agreement  was  similar,  except  that  one- 
eighth  was  to  go  to  Whittren,  one-eighth  to 
Eadie,  and  the  remainder,  after  paying  mining 
expenses,  to  be  divided  between  Waskey  and 
Eadie.  His  working  the  mine  was  a  valuable 
consideration,  and  none  the  less  so  if  in  the 
event  he  was  reimbursed  for  his  expenditures 
and  made  a  profit  for  his  trouble." 

The  Supreme  Court  of  the  United  States  clearly 
held  that  a  lessee  should  be  protected  as  any  other 
purchaser,  and  protected  by  upholding  his  lease, 
not  simply  by  returning  expenditures  to  him  and 
upon  the  theory  that  he  would  be  reimbursed  for 
expenditures  and  improvements  made  in  good 
faith,  and  would  thereby  be  placed  in  statu  quo. 
In  this  case  it  appeared  that  the  lessee  paid  no 
cash  consideration  for  the  leases,  and  the  real  con- 
sideration was  development.  The  Court,  therefore, 
held  that,  inasmuch  as  he  had  entered  on  the 
property  and  worked  the  mines,  he  paid  considera- 
tion and  was  in  a  position  to  allege  and  prove  that 
he  was  a  purchaser  for  value.  If  the  lessee  had 
paid  cash  for  the  right  to  mine,  his  position  would 
have  been  just  as  strong  as  it  was  where  he  paid 


90  INNOCENT  PURCHASER 

nothing,  but  supplied  the  lack  of  consideration  by 
operations. 

A  very  recent  California  case,  Bessho  v.  General 
Petroleum  Company,  199  Pac.  22,  recognizes  that 
a  lessee  or  assignee  of  a  lease  is  entitled  to  be 
protected  as  an  innocent  purchaser.  In  this  case 
it  was  shown  that  Bessho  obtained  a  written  lease 
covering  the  surface  rights  and  he  neglected  to 
have  the  lease  recorded.  Two  years  later  the 
General  Petroleum  Company  bought  from  the  origi- 
nal lessee  a  mineral  lease  covering  the  property 
which  had  previously  been  leased  to  Bessho. 
The  Oil  Company  proceeded  to  drill.  Bessho  sued 
the  Oil  Company  for  damages  caused  to  flowers 
under  cultivation  and  the  Oil  Company  defended 
on  the  ground  that  it  was  an  innocent  purchaser  of 
its  mineral  lease  and  therefore  its  right  to  operate 
was  superior  to  any  right  in  Bessho,  and  further, 
it  was  not  liable  for  any  damages  caused  by  oper- 
ations. 

The  Supreme  Court  of  California  admits  that 
if  the  original  lessee  had  taken  the  lease,  or  if  the 
Oil  Company  had  purchased  the  lease,  without  any 
notice,  actual  or  constructive,  of  the  prior  lease 
to  Bessho,  then,  as  innocent  purchaser,  it  would  be 
protected.  The  Court  held,  however,  that  since 
Bessho  was  in  possession  at  the  time  the  mineral 
lease  was  taken  and  at  the  time  the  Oil  Company 
purchased  it,  then  his  possession  was  notice  as  to 
his  rights,  and  therefore,  neither  the  original  lessee 
nor  the  Oil  Company  could  prove  lack  of  notice  of 
the  lease  to  Bessho.  This  case  is  important  by 
reason  of  the  recognition  of  the  right  of  either  the 
original  lessee  or  any  assignee  to  defend  as  inno- 
cent purchaser,  and  it  is  clearly  stated  that  the 
Oil  Company  would  have  been  protected  as  an 
innocent  purchaser  if  Bessho  had  not  been  in  pos- 


OF  OIL  AND  GAS  LEASE  91 

session   and   had   not  thereby   given   notice   of  his 
rights. 

PURCHASER  OF  A  LEASE  ON  A  BUILDING  IS 
PROTECTED. 

If  an  innocent  purchaser  of  a  lease  on  a  building 
is  protected,  the  same  rule  should  apply  to  the 
purchaser  of  a  mineral  lease.  Only  two  cases  by 
American  courts  have  been  found.  The  first  is  that 
of  Heirs  of  Ludlow  v.  Kidd's  Executors,  3  Ohio 
(Hammond's  Reports)  541,  551,  decided  in  1828. 
The  question  is  discussed  at  length  in  this  case  and, 
inasmuch  as  Hammond's  Reports  are  not  found  in 
most  libraries,  an  extended  quotation  from  the 
opinion  is  justified.  Many  of  the  English  cases 
which  are  cited  may  be  found  in  the  English  Re- 
print, and  reference  to  the  English  Reprint  is  in 
most  instances  given  in  parentheses.  The  Court 
said: 

"The  only  remaining  question  is,  whether 
the  Bank  of  the  United  States  are  innocent 
purchasers,  in  the  possession  of  that  part  of 
the  premises,  which  they  hold  as  assignees 
of  a  term  for  nine  hundred  and  ninety-nine 
years,  renewal  forever.  It  is  said  by  the  coun- 
sel for  complainants,  that  it  is  indispensable 
to  this  defense  that  the  party  should  claim 
the  fee  simple  estate,  and  should  fully  pay 
the  consideration  money.  In  order  to  sustain 
a  plea  of  purchase  for  valuable  consideration 
without  notice,  there  must  be  an  averment  that 
the  purchase  was  made  from  a  person  seized, 
in  fee,  and  that  the  purchase  money  has  been 
truly  and  fully  paid.  But  I  know  of  no  case 
going  the  length  of  deciding  that  the  purchaser 
must  claim  a  fee  simple  estate  to  avail  himself 
of  this  plea.  If  a  person  seized,  or  pretended 


92  INNOCENT  PURCHASER 

to  be  seized,  in  fee  of  lands,  lease  them  for  a 
term  of  years  to  another,  who  assigns  his  inter  • 
est  to  a  third  person,  such  third  person,  as  well 
as  the  lessee,  is  a  purchaser  entitled  to  pro- 
tection in  the  enjoyment  of  his  estate,  however 
small,  if  he  otherwise  bring  himself  within 
the  rule.  But  whatever  may  be  the  technical 
rules  applied  to  the  plea  of  an  innocent  pur- 
chaser, or  whatever  averments  may  be  neces- 
sary to  sustain  it,  they  have  no  application  to 
the  same  defense  made  by  the  answer.  A  plea 
of  innocent  purchaser,  with  all  its  necessary 
averments,  is  intended  not  only  to  protect  the 
defendant  in  the  possession  of  that  which  he 
holds,  but  to  prevent  the  chancellor  from  exer- 
cising jurisdiction  to  deprive  him  of  any  advan- 
tage he  may  have  at  law,  however  obtained,  or 
take  any  step,  or  afford  any  aid  against  him. 
Jerrard  vs.  Saunders,  2  Ves.  jr.  254.  But 
when  he  defends  himself  by  answer,  he  must 
make  out  a  case,  showing  that  in  equity  and 
good  conscience  his  claim  to  protection  is  equal 
to  the  complainants  to  relief,  to  prevent  the 
court  from  interfering  against  him. 

"There  are  many  cases  where  courts  of 
equity  have  protected  bona  fide  purchasers  of 
leasehold  estates,  and  of  goods  assigned,  and 
indorseds  of  bonds,  notes,  bills  of  exchange, 
bills  of  lading,  etc.,  in  the  possession  and  legal 
right  they  have  obtained  without  notice  of  ad- 
versary claims.  The  cases  of  Sorrel  vs.  Car- 
penter, 2  P.  Wms.  482;  Jolland  vs.  Stanbridge, 
3  Ves.  485  (30  Eng.  Reprint  1114) ;  Nugent  vs. 
Gifford,  1  Atk.  463  (26  Eng  Reprint  294), 
were  cases  where  the  defendants  protected 
themselves  as  innocent  purchasers  of  lease- 
hold estates;  and  the  same  doctrine  is  recog- 
nized in  Le  Neve  v.  Le  Neve,  3  Atk.  646,  26 


OF  OIL  AND  GAS  LEASE  93 

Eng.  Reprint  1172)  although  the  purchaser  of 
a  leasehold  estate  in  that  case  was  chargeable 
with  notice  and  of  course  could  not  protect  her- 
self. 

"The  case  of  the  Attorney  General  vs. 
Backhouse,  17  Ves.  283,  (34  Eng.  Reprint  110) 
cited  and  relied  on  by  the  complainants'  coun- 
sel, furnishes  an  apt  illustration  of  the  doc- 
trine of  courts  of  equity  upon  this  subject.  In 
that  case  it  appeared  that  the  trustees  of  a 
charity  seized  in  fee,  in  that  character,  of  some 
lands,  demised  them,  in  1775,  to  J.  Goad  for 
eighty  years.  Goad,  in  1776,  rented  part  of 
the  premises  to  Gurney  for  sixty-four  years. 
Goad  died  in  1799,  and  his  executors  sold  the 
residue  of  the  leasehold  premises,  by  auction, 
to  the  defendant  Backhouse.  Gurney's  lease 
was  sold  by  his  representatives,  and  finally 
came  to  the  defendant  Shepherd,  who  claimed 
in  his  answer  that  he  was  a  purchaser  for 
valuable  consideration,  without  notice  of  any 
fraud,  in  the  original  lease  from  the  trustees, 
and  asserting  that  neither  Gurney  nor  his  as- 
signee had  notice  of  the  lease  under  which 
Goad  derived  title.  The  chancellor,  after  lay- 
ing down  the  rule,  that  to  sustain  a  plea  of 
purchase  for  valuable  consideration  without 
notice,  there  must  be  an  averment  that  the 
party  purchased  from  a  person  seized,  or  pre- 
tending to  be  seized  in  fee,  goes  on  to  show 
that  the  lease  by  the  trustees  to  Goad  may  be 
such  an  abuse  of  the  charity  estate  as  to  render 
it  void,  and  observes  that  'if,  therefore,  the 
transaction  between  Goad  and  the  charity  sza 
be  voided,  yet  Gurney  (the  under-lessee)  'hav- 
ing given  a  fair  consideration,  and  held  undis- 
turbed possession  from  1775  to  1803,  sales  and 
mortgages  having  taken  place  without  question, 


94  INNOCENT  PURCHASER 

for  a  period  of  thirty-five  years,  the  interest  of 
the  charity  itself,  upon  all  reasonable  and 
equitable  principles,  requires  no  more  than 
that  I  should  transfer  to  the  charity  the  interest 
acquired  under  that  bargain.'  And  he  refuses 
to  set  aside  the  interest  which  Gurney  ac- 
quired by  his  lease,  and  protects  the  sub-les- 
sees, who  had  given  a  fair  consideration,  in  the 
interests  they  had  acquired,  merely  directing 
them  to  pay  the  rent  to  other  persons  than 
those  to  whom  they  had  contracted  to  pay  it, 
if  it  should  appear  on  the  inquiry  which  he 
directed  that  the  charity  ought  to  receive  it. 
In  the  late  case  of  Nedfearn  vs.  Forrier  et  al., 
1  Dows.  50,  (3  Eng.  Reprint  618)  upon  appeal 
to  the  House  of  Lords,  it  was  held  that  a 
latent  equity  in  a  third  person  should  not  de- 
feat a  bona  fide  assignee  of  a  right,  without 
notice;  and  the  same  doctrine  is  recognized 
by  Chancellor  Kent,  in  Murray  v.  Lyeburn,  2 
Johns.  Ch.  441.  The  cases  of  assignment  by 
operation  of  law,  as  assignees  of  bankrupts, 
form  an  exception  to  this  rule,  such  assign- 
ments passing  the  right,  subject  to  all  equities, 
and  the  assignees  being  in  the  same  plight  and 
condition  as  those  from  whom  they  were  deriv- 
ed. 

"In  this  case  it  appears  that  Kidd,  at  the 
time  he  leased  part  of  the  lot  to  Smith  and 
Loring,  was  seized,  or  pretended  to  be  seized 
of  a  legal  estate  in  fee  to  it ;  that  neither  Smith 
and  Loring,  nor  the  bank,  at  the  time  they 
respectively  purchased,  had  notice  of  the  claim 
of  the  complainants;  that  valuable  improve- 
ments have  been  made  by  them,  whereby  the 
property  is  greatly  enhanced  in  value,  and  that 
the  bank  paid  a  large  sum  to  Smith  and  Lor- 
ing for  the  leasehold  estate.  Under  such 


OF  OIL  AND  GAS  LEASE  95 

circumstances,  a  court  of  equity  cannot  inter- 
fere and  deprive  them  of  their  interest  in  the 
property,  in  favor  of  a  latent  equity,  unknown 
to  them  when  they  purchased.  The  most  the 
court  could  do,  would  be  to  follow  the  ex- 
ample of  Lord  Eldon,  in  the  case  of  the  Attor- 
ney General  vs.  Backhouse,  before  cited,  order- 
ing these  defendants  to  pay  to  the  complain- 
ants the  annual  accruing  rent,  instead  of  the 
person  to  whom  they  contracted  to  pay  it, 
if,  upon  the  final  hearing  of  the  cause  against 
Kidd's  executors,  the  court  should  be  of  opinion 
the  complainants  were  entitled  to  it. 

"The  complainants  having  asked  leave  to 
reply  to  the  pleas  and  answer,  if  the  court 
should  be  of  opinion  that  the  matter  contained 
in  them  was  a  defense  to  the  relief  sought,  and 
the  court  being  satisfied  that  the  complainants 
are  not  entitled  to  relief  against  the  defend- 
ants, upon  the  pleadings,  they  will  be  permit- 
ted, under  the  circumstances,  to  file  such  repli- 
cations as  they  may  be  advised." 

The  second  case  which  has  been  found  discuss- 
ing the  rule  with  respect  to  the  purchase  of  a  lease 
on  a  building,  is  that  of  McDaid  v.  Call,  111  111. 
298,  decided  by  the  Supreme  Court  of  Illinois  in 
1884.  In  this  case  it  appeared  that  the  owner  of 
the  fee  executed  a  99  year  lease  to  Charles  Fisher, 
covering  property  on  State  Street  in  Chicago.  Fish- 
er assigned  the  lease  to  McDaid,  who,  in  turn,  as- 
signed it  to  Gibbs.  In  reality  the  assignment  from 
McDaid  to  Gibbs  was  made  to  secure  a  debt,  and 
was,  therefore,  only  a  mortgage,  but  on  the  face 
of  the  instrument  the  entire  leasehold  vested  in 
Gibbs,  and  he  assumed  control  and  management 
of  the  lease  and  Call  then  sold  the  rights  under 
the  contract  to  Hoyne,  and  subsequently  Hoyne 
paid  the  purchase  money  and  the  lease  was  assign- 


96  INNOCENT  PURCHASER 

ed  to  him  by  Gibbs,  the  record  owner.  Later  Call 
bought  the  lease  from  Hoyne,  and  a  contest  arose 
as  to  the  validity  of  the  assignment  from  McDaid  to 
Gibbs,  in  which  litigation,  Call  defended  as  inno- 
cent purchaser.  The  court  held  that  Gibbs  had 
record  title,  and  therefore  one  who  dealt  with  him 
as  the  true  owner  of  the  lease  and  who  purchased 
the  same  for  valuable  consideration  in  good  faith, 
without  notice  of  any  claim  adverse  to  the  apparent 
title  of  the  record  owner,  should  be  protected.  As 
stated  in  the  syllabus: 

"A  person  taking  a  conveyance  of  a  lease- 
hold estate  from  one  having  a  perfect  title  of 
record,  without  notice  and  for  a  full  considera- 
tion, will  be  protected  from  any  secret  equities 
in  favor  of  a  former  owner  and  those  claiming 
under  him,  and  will  not  be  held  responsible  for 
acts  of  bad  faith  on  the  part  of  those  from 
whom  he  acquires  title." 

In  each  case  discussed  above,  except  the  Texas 
case  of  Fox  v.  Robbins,  the  court  upheld  the  lease, 
but,  in  view  of  the  holding  in  the  case  of  Fox  vs. 
Robbins,  it  is  advisable  to  discuss  the  rule  as  to 
pro  tan  to  protection. 

RULE  OF  PRO  TANTO  PROTECTION. 

The  English  courts  established  the  rule  that 
protection  would  be  denied  unless  the  purchaser 
paid  the  full  price  or  consideration  prior  to  notice. 
Equity  courts  in  America  soon  found  that  strict  ad- 
herence to  this  general  rule  resulted  in  hardships, 
and  consequently  limitations  were  recognized  or 
exceptions  made  which  have  become  as  firmly  fix- 
ed as  the  general  rule  itself.  Any  extended  dis- 
cussion of  the  pro  tanto  rule  would  be  out  of  place 
in  this  paper;  indeed,  the  subject  is  fully  covered  in 


,  OP  OIL  AND  GAS  LEASE  97 

the  case  of  Durst  v.  Daugherty,  81  Tex.  650,  where 
it  is  said  : 

"Appellants  insist  that  the  court  erred  in 
rendering  judgment  in  favor  of  appellee  for  the 
entire  tract  of  land,  because  it  appears  by  the 
agreement  that  appellee  purchased  the  land 
without  notice  of  appellants'  title,  and  only 
paid  one-half  of  the  purchase  money  before 
he  obtained  knowledge  of  the  claim  of  Monroe 
Edwards  and  of  defendants,  and  that  the  other 
half  of  the  purchase  money  has  not  been  paid. 
We  believe  in  this  respect  the  judgment  is  erro- 
neous, and  for  this  reason  solely  we  reverse  it. 
The  pro  tanto  protection  accorded  an  innocent 
purchaser  is  so  well  recognized  by  American 
courts  that  we  deem  it  unnecessary  to 
cite  authority  in  support  of  the  right. 
The  difficulty  lies  in  the  application  of 
the  rule,  and  how  the  relief  should  be 
administered.  Some  courts  adopt  that 
rule  that  allows  the  innocent  purchaser  to 
retain  of  the  land  purchased  the  proportion 
paid  for.  Some  admit  a  lien  in  favor  of  the 
innocent  purchaser  upon  the  land  for  the 
amount  of  the  purchase  money  paid.  Other 
courts  give  to  the  innocent  purchaser  all  the 
land,  with  a  right  in  the  real  owner  to  recover 
from  him  the  purchase  money  unpaid  at  the 
time  of  notice.  2  Pome,  Ed.,  sec.  750;  16 
Am.  and  Eng.  Encyc.  of  Law,  p.  835. 

In  determining  which  of  these  rules  should 
be  appiled  in  any  case  it  is  necessary  to  ascer- 
tain the  equities,  if  any,  of  the  respective  par- 
ties. For  in  the  application  of  these  rules  the 
adjustment  of  the  equities  of  each  given  case 
is  the  primary  object  to  be  accomplished.  The 
rule  that  should  be  applied  in  one  case  may  be 
inequitable  if  applied  to  another.  Consequently 


98  INNOCENT  PURCHASER 

it  is  not  proper  that  a  court  select  one  rule  to 
the  exclusion  of  the  others  as  a  rule  that  should 
govern  alike  in  all  cases.  In  ascertaining  what 
the  equities  of  the  parties  are  it  is  permissible 
to  inquire  into  the  price  paid  for  the  land  by 
the  innocent  purchaser,  and  if  or  not  he  has 
placed  upon  the  land  permanent  and  valuable 
improvements,  and  if  or  not  the  land,  situated 
as  it  is  at  the  time,  is  in  a  condition  to  be  par- 
titioned or  divided  so  that  it  would  not  effect 
or  destroy  its  usefulness  and  render  it  of  little 
or  no  value  to  either  party,  or  if  a  partition 
could  be  had  without  injury  to  the  innocent 
purchaser.  And  it  is  further  proper  to  show 
the  conduct  of  the  parties  with  reference  to 
their  acts  of  diligence,  laches,  or  negligence, 
if  any,  in  order  to  ascertain  what  party,  if  any, 
is  in  fault,  so  that  the  court  can  determine 
who  is  the  more  entitled  to  its  equitable  relief, 
and  if  the  land  by  reason  of  the  improvements, 
if  any,  placed  thereon  by  the  innocent  pur- 
chaser has  increased  in  value  since  its  purchase. 

An  investigation  of  the  case  may  develop 
other  facts  that  it  may  be  important  to  consider, 
but  those  mentioned  suggest  the  importance  of 
the  inquiry  and  why  the  application  of  either 
of  the  rules  should  depend  upon  the  facts  of 
each  case.  A  few  illustrations  are  not  im- 
proper to  show  the  importance  of  an  inquiry 
into  the  equities  of  the  respective  parties.  Take 
the  case  of  an  innocent  purchaser  buying  the 
land  for  much  less  than  its  true  value.  In 
such  a  case  it  may  be  inequitable  to  compel  the 
true  owner  to  accept  the  amount  of  the  pur- 
chase money  unpaid  in  satisfaction  of  his  de- 
mand, and  the  proper  remedy  may  be  the 
application  of  the  rule  that  permits  the  true 
owner  to  recover  the  proportion  of  the  land 


OF  OIL  AND  GAS  LEASE  99 

unpaid  for;  or  the  proper  remedy  may  be  the 
rule  that  permits  the  owner  to  recover  the  en- 
tire tract  upon  reimbursing  the  innoccent  pur- 
chaser the  amount  by  him  paid,  with  the  value 
of  the  improvements,  if  any,  erected  prior  to 
the  time  he  obtained  notice  of  the  true  title. 

On  the  other  hand,  if  the  innocent  purchaser 
has  paid  full  value  for  the  land  and  has  er- 
ected improvements  on  it,  and  the  land  is  so 
situated  that  it  could  not  without  injury  to  the 
rights  of  the  innocent  purchaser  be  divided, 
the  proper  rule  to  be  applied  in  such  case  may 
be  that  which  awards  to  the  innocent  pur- 
chaser the  entire  tract  charged  in  favor  of  the 
true  owner  with  the  purchase  money  unpaid 
before  notice.  The  record  before  us  is  silent 
as  to  the  status  of  the  land,  and  does  not  in- 
form us  of  the  equities  of  the  parties.  There- 
fore this  court  cannot  with  propriety  say  what 
rule  should  govern  in  this  case.  This  can  be 
ascertained  by  a  trial  in  the  court  below 
upon  a  full  hearing  of  the  facts." 

The  Durst  case  was  followed  in  Sparks  v.  Tay- 
lor, 99  Tex.  411,  427,  6  L.  R.  A.  (N.  S.)  381,  and 
Hines  v.  Meadow,  193  S.  W.  1111,  the  last  case 
being  a  continuation  of  litigation  partially  disposed 
of  by  the  Sparks  case. 

The  application  of  the  principles  announed  in 
the  quotation  above,  as  relating  to  an  oil  lease,  is 
apparent.  The  contention  is  sometimes  made  that 
the  commutation  or  delay  money  and  the  pros- 
pective royalties  are  part  of  the  consideration  for 
the  execution  of  the  lease,  and  therefore  the  lessee 
cannot  claim  that  full  consideration  has  been  paid 
by  payment  of  bonus  money.  This  contention  has 
already  been  discussed  and  needs  no  repetition. 
It  is  sufficient  to  say  that  commutation  money  and 


100  INNOCENT  PURCHASER 

royalties  are  treated  as  income,  not  purchase  money 
or  return  of  capital,  and  therefore  they  are  classed 
as  income  by  the  federal  tax  laws,  and  further, 
they  properly  belong  to  the  life  tenant,  not  the  re- 
mainderman, in  connection  with  leases  existing 
prior  to  the  vesting  of  the  life  estate. 

But  even  if  it  be  assumed  that  rentals  and  royal- 
ties are  deferred  payments  somewhat  in  the  nature 
of  vendor's  lien  notes,  it  does  not  follow  that  an 
innocent  purchaser  of  a  mineral  lease  can  be  pro- 
tected by  returning  bonus  money  and  other  pay- 
ments or  expenditures  and  upon  the  theory  that  the 
purchaser  will  be  placed  in  statu  quo.  In  most 
instances  the  equities  of  the  parties  require  that 
the  lease  be  upheld,  and  the  real  owner  substitued 
for  the  apparent  owner  as  to  future  payments. 

When  the  original  lessee  still  owns  the  lease  and 
has  not  exercised  the  right  to  develop,  and  when 
the  value  of  the  lease  has  not  increased,  it  may  be 
true  that  he  can  be  protected  by  returning  to  him 
all  payments  made,  and  cancelling  the  lease,  but 
a  very  differnt  situation  arises  after  operations  are 
begun  or  after  the  value  of  the  leasehold  has 
materially  increased.  In  the  case  of  Hines  v.  Mead- 
ows, 193  S.  W.  1111,  mentioned  above,  it  is  pointed 
out  that,  where  the  value  of  land  has  greatly  in- 
creased, it  would  clearly  be  inequitable  to  cancel 
the  deed  to  the  innocent  purchaser  and  return  to 
him  the  money  paid,  with  interest,  and  cancel  the 
outstanding  notes,  for  other  lands  of  similar  kind 
and  value  cannot  be  purchased  on  the  same  terms. 
It  is  also  pointed  out  that,  under  the  circumstances 
existing  in  that  case,  it  would  be  inequitable  to 
permit  the  innocent  purchaser  to  pay  off  the  notes, 
and  vest  title  in  him  as  to  all  of  the  land.  The 
case  is  very  valuable  as  an  illustration  of  the  rule 
that  each  case  must  stand  on  its  own  facts. 


INNOCENT  PURCHASER  101 

The  adjustment  of  equities  with  respect  to  a 
mineral  lease  becomes  even  more  complicated  when 
the  lease  has  been  sold.  A  lease  based  upon  an 
initial  consideration  of  one  dollar  may  be  sold  for 
ten  thousand  dollars.  Unquestionably,  in  such 
an  instance  the  purchaser  of  the  lease  has  paid 
valuable  consideration  and,  as  a  general  rule,  he 
should  be  protected  by  upholding  the  lease,  and 
especially  on  account  of  the  fluctuating  value  of  oil 
lands. 

The  two  cases  involving  a  lease  on  a  building 
are  illustrative  of  the  idea.  In  each  of  these,  the 
sole  consideration  for  the  execution  of  the  lease 
was  the  obligation  to  pay  periodic  rentals.  Ob- 
viously, all  of  the  consideration  was  not  paid  at  the 
time  the  lease  was  executed.  In  each  case  valu- 
able consideration  was  paid  for  the  assignment  of 
the  lease,  and  the  courts  held  that  the  purchaser 
should  be  protected  in  his  bargain. 

CONCLUSIONS  AS  TO  PRO  TANTO  RULE. 

(1)  Each  case  stands  on  its  own  facts. 

(2)  If  all   the   consideration   for  the    lease   or 
assignment  is  paid  before  notice  of  any  outstand- 
ing equity  or  title,  then  the  court  should  decree  that 
the  lease  be  upheld,  and  order  disposition  of  future 
rents  or  royalties  in  accordance  with  the  facts. 

(3)  If  full   payment  for  the  lease  or  transfer 
has  not  been  made  prior  to  notice  of  an  outstanding 
equity  or  title,  then  the  court,  in  view  of  all  the 
facts,  must  determine  what  is  a  fair  adjustment  of 
the  equities  between  the  parties. 

LESSEE  SHOULD  BE  PROTECTED  AS  HAVING 

THE    BETTER    EQUITY. 
In  most  of  the  cases  in  which  the  lessee  or  as- 


102  INNOCENT  PURCHASER 

signee  seeks  to  invoke  the  defense  of  innocent  pur- 
chaser, it  seems  that  protection  should  be  given, 
whether  or  not  the  innocent  purchaser  doctrine  is 
technically  applicable.  If  it  be  true  that  the  lessee 
or  assignee  is  deprived  of  the  defense  of  innocent 
purchaser,  upon  the  theory  that  no  legal  title  is 
purchased,  it  does  not  follow  that  he  is  deprived  of 
other  equitable  defenses  based  upon  the  same  facts. 
The  basis  of  innocent  purchaser  doctrine  is  often 
misunderstood,  and  in  order  to  clarify  the  dis- 
cussion, a  brief  history  of  the  innocent  purchaser 
rule  will  be  given. 

The  doctrine  of  innocent  purchaser  is  a  creation 
of  equity  courts,  and  was  only  applied  when  at 
least  one  of  the  claimants  held  an  equitable  title, 
and  it  must  be  remembered  that  under  the  English 
system  there  were  no  recording  statutes.  When 
nothing  but  legal  titles  or  claims  were  involved, 
there  was  no  jurisdiction  in  an  equity  court.  As 
pointed  out  by  Mr.  Pomeroy  in  his  discussion  of 
the  subject  in  Volume  2,  under  the  heading:  "Bona 
Fide  Purchase",  the  doctrine  was  not  originally  a 
rule  of  property  and  it  was  not  treated  as  a  defense, 
at  least  in  the  sense  that  we  now  use  that  term. 
The  equity  court  did  not  decide  that  a  litigant  had 
title;  it  merely  refused  to  decide  the  issues  on  their 
merits,  and  as  a  practical  proposition  it  resulted  in 
full  protection  to  the  innocent  purchaser  of  a  legal 
title  as  against  the  claim  of  an  owner  of  an  equit- 
able title.  Whenever  it  was  shown  that  a  grantee 
was  an  innocent  purchaser,  the  equity  court  simply 
refused  to  act,  and  left  the  parties  to  litigate  in  the 
law  courts  where,  of  course,  the  purchaser  of  the 
legal  title  prevailed.  With  the  passage  of  recording 
statutes  and  the  abolition  of  the  strict  distinction 
between  equitable  and  legal  rights  and  remedies, 
the  application  in  America  of  the  English  cases  and 


OF  OIL  AND   GAS  LEASE  103 

the  reasoning  supporting  them  became  difficult,  and 
considerable  confusion  inevitably  resulted. 

In  Texas,  especially  on  account  of  the  regis- 
tration statutes,  the  innocent  purchaser  doctrine 
may  be  called  a  rule  of  property,  and  certainly  it  is 
looked  upon  as  a  defense,  the  sustaining  of  which 
results  in  the  acquisition  of  title,  as  far  as  the  plain- 
tiff is  concerned. 

Stripped  of  all  theories  and  fine  distinctions,  it 
it  considered  proper  to  say  that  whenever  a  defen- 
dant holding  legal  title  can  show  that  he  relied  upon 
the  records  as  showing  the  ownership  of  land,  and 
that  without  notice  of  any  adverse  claim  or  title,  he 
purchased  the  property  for  valuable  consideration 
and  in  good  faith,  he  gets  title,  because  the  real 
owner,  or  the  owner  of  any  equity  or  encumbrance, 
is  estopped  to  assert  his  title,  equity  or  encum- 
brance. 

The  innocent  purchaser  rule  is,  therefore,  a 
species  of  estoppel.  The  registration  statutes  sim- 
ply provide  that  when  a  certain  state  of  facts  exists 
an  estoppel  is  applicable,  regardless  of  equities  or 
hardships.  The  idea  may  be  made  clearer  by  illus- 
tration. As  already  shown,  it  is  settled  in  Texas 
that  the  title  to  a  one  half  interest  in  community 
property  which  is  inherited  by  children  from  their 
deceased  mother,  is  an  equitable,  not  a  legal  title. 
It  has  been  repeatedly  held  that  one  who  purchases 
from  the  father,  being  the  record  owner,  and  with- 
out notice,  etc.,  gets  full  title,  and  the  children  can- 
not recover.  Assuming  that  the  children  are  mi- 
nors, it  cannot  be  said  that  they  are  estopped  from 
asserting  their  title  by  failure  to  place  of  record 
some  evidence  of  their  title,  because  true  estoppel 
arises  only  when  the  person  estopped  is  sui  juris  and 
therefore  responsible  for  his  acts  and  conduct,  ac- 
tive and  passive.  A  minor  is  not  presumed  to  know 


104  INNOCENT  PURCHASER 

his  property  rights  but,  since  the  innocent  pur- 
chaser rule  is  not  a  true  rule  of  estoppel,  a  minor 
is  cut  off,  as  well  as  an  adult,  whenever  a  pur- 
chaser brings  himself  within  the  statutes. 

The  point  to  be  made  under  this  heading  is 
that,  in  many  instances,  a  lessee  or  assignee  should 
be  protected,  regardless  of  ability  to  come  strictly 
within  the  innocent  purchaser  rule,  even  though  it 
may  be  correct  to  say  that  he  acquires  no  legal 
title  but  purchases  only  an  equitable  right.  Pro- 
tection should  be  given  by  applying  well  known 
rules  of  estoppel,  or  by  the  application  of  the  prin- 
ciples announced  in  the  maxims  to  the  effect  that 
where  two  equities  or  rights  are  in  conflict,  the 
courts  should  do  equity  by  protecting  the  most  in- 
nocent; when  one  of  two  innocent  persons  must 
suffer,  he  who  trusts  the  most  must  suffer  the  most; 
whenever  one  of  two  innocent  persons  must  suffer 
by  the  acts  of  a  third,  he  who  enables  such  third 
person  to  occasion  the  loss  must  sustain  it. 

Naturally,  estoppel  and  the  maxims  just  men- 
tioned are  applicable  to  a  great  variety  of  facts. 
The  facts  with  respect  to  the  title  inherited  by  child- 
ren illustrate  the  proposition.  If  it  be  assumed  that 
the  children  are  adults  and  are  not  under  any  dis- 
ability, they  know,  or  are  presumed  to  know,  that 
they  inherited  from  their  deceased  mother  a  one- 
half  interest  in  the  community  property,  and  that 
the  legal  title  to  the  property  stands  in  the  name 
of  their  father.  They  know,  or  are  presumed  to 
know,  that  their  father  is  the  apparent  owner  of  the 
property  and  that  by  their  failure  to  sue  for  par- 
tition or  to  place  of  record  some  instrument  show- 
ing their  title,  they  thereby  place  their  father  in  a 
position  where  someone  may  deal  with  him  as  being 
the  real  and  sole  owner  of  the  property.  The 
situation  is  substantially  the  same  as  if  the  children 
had  advanced  half  of  the  purchase  money,  the 


OF  OIL  AND  GAS  LEASE  105 

father  the  other  half,  and  the  title  was  taken  in  the 
name  of  the  father  and  by  the  children's  consent 
If  a  lessee,  relying  upon  the  records  and  with  no 
notice  of  the  title  of  the  children,  takes  a  lease 
from  the  father  in  good  faith  and  for  valuable  con- 
sideration, upon  what  theory  should  the  children  be 
permitted  to  cancel  the  lease  as  to  their  half  interest 
in  the  land? 

Even  if  it  be  admitted  that  the  lease  does  not 
vest  a  legal  estate  or  title  in  the  lessee,  and  because 
thereof  the  defense  of  innocent  purchase  is  pro- 
perly denied,  it  certainly  is  true  that  the  lessee  has 
an  equity,  and  therefore  the  conflict  is  between 
the  equity  of  the  children  and  the  equity  of  the 
lessee.  By  applying  the  rule  of  estoppel  and  the 
principles  stated  in  the  equitable  maxims,  it  follows 
that  the  lessee  has  the  better  equity.  The  child- 
ren, who  trusted  most,  should  suffer  most.  The 
children,  who  created  the  condition  which  misled 
the  lessee,  must  sustain  the  loss,  and  not  the  inno- 
cent lessee. 

If  A  is  induced,  by  fraudulent  representations,  to 
convey  land  to  B,  then  A,  within  the  limitation 
period,  may  rescind.  If  it  be  assumed  that  A, 
after  he  discovers  the  fraud,  delays  in  bringing  a 
cancellation  suit  and  says  nothing  about  his  right  to 
rescind,  and  in  the  meantime  C,  with  no  notice  of 
the  fraud  and  relying  upon  the  records  as  showing 
good  title  in  B,  takes  a  lease  from  B,  what  are  the 
rights  of  the  parties?  Even  if  it  be  admitted  that 
C  cannot  defend  as  innocent  purchaser  because  he 
acquired  no  legal  title  when  he  took  the  lease, 
surely  A,  by  his  failure  to  bring  suit  promptly, 
would  be  estopped,  as  far  as  rights  under  the  lease 
are  concerned,  to  deny  that  B  had  title,  and  the 
lease  should  be  upheld,  because  C  has  the  better 
equity  and  is  more  innocent  that  A. 


106  OF  OIL  AND  GAS  LEASE 

In  Johnson  v.  Newman,  43  Tex.  628,  641,  the 
court  admits  that  it  is  the  general  rule,  though  not 
without  exceptions,  that  only  the  purchaser  of  legal 
title  can  defend  as  innocent  purchaser,  but  the  court 
says  that  the  innocent  purchaser  rule  has  no  appli- 
cation where  equities  only  are  in  conflict,  and  as 
between  equities,  justice  is  done  in  accordance  with 
the  facts. 

In  Hines  v.  Meadow,  193  S.  W.  1111,  it  was 
shown  that  a  wife  mortgaged  her  separate  prop- 
erty in  Ohio  to  secure  funds  with  which  to  pur- 
chase land  in  Texas,  and  that  she  delivered  the  mon- 
ey to  her  husband  with  the  understanding  that  the 
deeds  would  be  made  to  her.  The  husband  pur- 
chased the  land  but  took  title  in  his  name  and  later 
he  deeded  part  of  the  land  to  persons  who  relied 
upon  the  records  as  showing  the  true  status  of  the 
title,  and  who  had  no  notice  of  the  claim  or  title 
of  the  wife.  The  wife,  after  the  land  had  been 
sold  by  the  husband,  sued  the  purchaser  for  the 
land.  The  court  gave  protection  to  the  purchaser, 
not  only  by  applying  the  doctrine  of  innocent  pur- 
chaser, but  by  applying  an  equitable  maxim.  The 
court  said : 

"The  maxim  that  where  one  of  two  inno- 
cent persons  must  suffer,  he  who  trusts  most 
must  suffer  most  applies  to  this  case." 

In  the  case  of  Magnolia  Co.  v.  Saylor,  180 
Pac.  861,  by  the  Supreme  Court  of  Oklahoma,  the 
lessee,  without  authority,  altered  the  mining  lease 
after  execution  and  delivery  so  that  it  provided  for 
payment  of  rentals  on  the  basis  of  $1.00  an  acre, 
instead  of  $1.50  an  acre.  The  lease,  as  altered, 
was  then  sold  to  the  Corsicana  Petroleum  Com- 
pany, which  ,in  turn,  sold  it  to  the  Magnolia  Com- 
pany. The  first  rental  was  paid  on  the  basis  of 
$1.00  an  acre,  and  was  accepted  by  the  lessor. 


OF  OIL  AND  GAS  LEASE  107 

She  discovered  later,  by  reference  to  a  duplicate 
original  of  the  lease,  that  the  rental  should  have 
been  $1.50  an  acre.  She  sued  to  cancel  the  lease, 
alleging  a  failure  to  comply  with  the  terms  of  the 
lease,  and  further  alleging  the  fraud  and  alteration 
of  the  instrument.  The  Magnolia  Company  defend- 
ed as  innocent  purchaser,  etc.  The  court  upheld 
the  Magnolia  Company's  lease,  saying: 

"Whenever  one  of  two  innocent  persons 
must  suffer  by  the  acts  of  a  third,  he  who  en- 
ables such  third  person  to  occasion  the  loss 
must  sustain  it." 

A  number  of  cases  are  cited  and  discussed  in 
support  of  the  holding.  See  21  Corpus  Juris  1170. 

The  Supreme  Court  of  the  United  States,  in 
Boone  v.  Childs,  10  Peters  177,  9  L.  Ed.  388,  dis- 
cusses somewhat  at  length  the  rules  under  con- 
sideration. It  is  pointed  out  in  such  case  that, 
while  it  may  be  the  rule  that  the  defense  of  inno- 
cent purchaser  is  ordinarily  denied  to  one  not  hold- 
ing legal  title,  nevertheless  when  two  equities  are 
in  conflict,  the  better  equity  prevails. 

POLICY  OF  REGISTRATION  STATUTES. 

It  has  been  said  that  registration  laws  were 
designed  to  furnish  a  substitute  for  livery  of  seizin. 
Watkins  v.  Edwards,  23  Tex.  443.  Until  com- 
paratively recent  date,  such  laws  were  not  known 
to  the  English  land  system,  which  was  and  still  is 
materially  different  from  the  American  system. 
Under  the  English  system,  though  now  somewhat 
modified  by  the  introduction  of  recording  statutes, 
it  is  contemplated  that  all  title  deeds  or  other 
muniments  of  title,  evidencing  transfers  of  property, 
shall  be  in  the  possession  or  under  the  control  of 
the  owner  of  the  property.  One  who  is  the  ap- 
parent owner  and  who  has  possession  of  all  the 


108  INNOCENT  PURCHASER 

title  deeds  stands  in  practically  the  same  position 
as  one  in  America  who  has  a  perfect  record  title. 
See  2  Pomeroy,  Sections  612  and  645. 

Our  system  contemplates  the  recording  of  every 
instrument  which  affects  the  title  to  land,  and 
upon  failure  to  file  an  instrument  for  record,  it 
is  not  good  against  a  purchaser  for  valuable  con- 
sideration in  good  faith  and  without  notice.  Our 
registration  laws  were  designed  to  give  stability  to 
titles  and  to  protect  those  who  deal  in  land  on  the 
faith  of  the  records.  Moran  v.  Wheeler,  87  Tex. 
174;  Southern  Association  v.  Bracket,  91  Tex. 
44;  Thomas  v.  Bank,  127  S.  W.  844,  8  Pomeroy 
Section  649.  As  stated  in  Edwards  vs.  Brown,  68 
Tex.  329:  "The  policy  of  our  laws  is  to  protect 
purchasers  against  secret  titles,  whether  they  be 
legal  or  equitable,  and  justice  demands  this  in  the 
one  case  as  well  as  in  the  other.  In  fact,  registra- 
tion acts  protect  an  innocent  purchaser  as  fully 
against  the  lebal  title  as  against  an  equitable 
claim." 

As  already  pointed  out,  the  purchaser  of  an 
equitable  title,  or  one  who  deals  upon  the  faith  of 
the  records,  is  protected  against  a  secret  equity 
or  title,  at  least  when  the  equity  or  title  is  subject 
to  the  registration  laws.  This  follows,  not  only 
because  the  recording  statutes  declare  that  a  title 
or  equity,  evidenced  by  an  instrument  in  writing, 
shall  not  be  good  against  subsequent  bona  fide 
purchasers  unless  such  instrument  is  filed  for  rec- 
ord, but  the  owner  of  the  title  or  equity  is  likewise 
cut  off  because  an  estoppel  results,  and  a  bona  fide 
purchaser,  having  the  better  equity,  prevails.  In 
other  words,  in  most  instances  where  a  purchaser 
is  protected  because  of  the  registration  statutes,  he 
would  also  be  protected  under  the  law  of  estop- 
pel, or  as  having  a  better  equity. 


OF  OIL  AND   GAS  LEASE  109 

If  A  lends  money  to  B,  who  is  a  record  owner 
of  land,  and  takes  a  mortgage  to  secure  the  debt, 
then  this  mortgage  is  superior  to  an  outstanding 
equity  or  title,  of  which  A  had  no  notice.  Ramirez 
v.  Smith,  94  Tex.  184.  Not  only  do  the  registra- 
tion statutes  apply,  but  protection  is  also  based 
upon  the  theory  that,  by  permitting  the  record 
title  to  stand  in  B,  it  is  equivalent  to  holding  B  out 
as  the  true  owner,  and  therefore  A  is  protected 
in  dealing  with  him  as  such.  Elmdorf  v.  Tejada, 
23  S.  W.  935 ;  Bicochi  v.  Casey,  40  S.  W.  209 ;  Allen 
v.  Bank,  52  S.  W.  575;  16  Cyc.  773;  21  Corpus 
Juris  1170.  It  seems  that  the  Texas  courts  are 
inclined  to  go  even  further,  and  hold  that  a  judg- 
ment lien  will  attach  to  property  standing  in  the 
name  of  the  judgment  debtor,  though  he  may  not 
be  the  real  owner.  See  Simkins  on  Equity,  page 
458. 

That  persons  dealing  upon  the  faith  of  the 
records  should  be  protected,  is  further  illustrated 
by  those  cases  which  hold  that  where  A  executes 
an  instrument  reciting  consideration,  then  A  is  es- 
topped as  to  third  parties  dealing  upon  faith  of  the 
recital,  to  show  that  no  consideration  was  paid. 
Ry.  Co.  v.  Pfeuffer,  56  Tex.  66;  Harris  v.  Burks, 
101  Tex.  106,  105  S.  W.  174;  McKay  v.  Talley, 
220  S.  W.  167;  Hickernell  vs.  Gregory,  224  S.  W. 
691.  The  Hickernell  and  McKay  cases  involved 
oil  leases,  and  the  lessors  were  denied  the  right  to 
cancel  them  as  against  an  assignee  who  had  re- 
lied upon  the  recital  that  the  instrument  was  sup- 
ported by  consideration. 

If  it  is  the  policy  of  the  registration  statutes  tj 
protect  all  persons  dealing  with  land  upon  the 
faith  of  the  records,  and  to  penalize  all  persons 
who  have  titles  or  equities  which  are  not  disclosed 
by  the  records,  and  further,  to  estop,  as  to  innocent 
third  persons,  every  grantor  who  seeks  to  deny 


110  INNOCENT  PURCHASER 

the  truth  of  recitals  contained  in  a  recorded  in- 
strument, why  should  not  a  lessee  or  an  assignee 
of  an  ordinary  lease  who  pays  a  valuable  consid- 
eration in  good  faith,  and  without  notice  of  any 
defects  in  the  title  which  he  is  buying, — be  pro- 
tected as  against  a  title  or  equity  not  disclosed  by 
the  records? 

Protection  should  be  afforded  the  lessee  or  the 
assignee,  not  only  because  of  the  registration  laws, 
but  because  of  the  rule  that — Where  the  true 
owner  of  property  holds  out  another  as  the  real 
owner,  or  vests  him  with  apparent  ownership,  then 
innocent  third  parties  are  protected  in  dealing 
with  the  apparent  owner.  16  Cyc.  773;  10  Ruling 
Case  Law,  102 ;  Breeze  v.  Brooks,  22  L.  R.  A. 
257  and  Notes;  Notes  to  30  L.  R.  A.  (N.  S.)  1; 
Notes  to  46  L.  R.  A.  (N.  S.)  1097;  Bigelow  on  Es- 
toppel, 6th  Ed.  p.  607. 

FINAL  CONCLUSIONS. 

(1)  In  Texas  a  deed  to  oil  or  gas  in  place  con- 
veys to  the  grantee  the  title  to  such  oil  or  gas  that 
may  be  under  the  land,  and  a  severance  of  the  min- 
eral  from   the   surface   estate   is   effected.     Stated 
otherwise:    Oil   or   gas   in   place   is   susceptible   of 
ownership  separate  and  apart  from  the  ownership 
of  the  surface,  and  title  may  be  created  by  con- 
veyance or  by  exception. 

(2)  The  ordinary  oil   and   gas  lease   does  not 
convey  to  the  lessee  any  present  title  to  oil  or  gas 
in  place,  but  it  creates  a  present,  vested,  exclusive 
right  to  enter  and  produce,  and  in  effect  conveys 
all  or  a  large  part  of  the  minerals  when  produced, 
and  this  right  to  enter,  produce  and  appropriate 
minerals  when  reduced  to  possession,  is  a  vested 
legal  estate  or  title,  and  not  a  mere  option. 

(3)  The  title  to  oil  or  gas,  under  an  ordinary 


OF  OIL  AND  GAS  LEASE 


lease,  is  inchoate.  In  fact,  title  does  not  vest  until 
the  mineral  is  reduced  to  possession,  but  the  right 
to  enter,  produce  and  appropriate  the  mineral 
when  produced  is  not  inchoate,  but  vests  absolutely 
upon  delivery  of  the  lease. 

(4)  The  estate  created  by  the  ordinary  lease  is 
properly   designated   as  a   profit  a  prendre.     It  is 
likewise    an    incorporeal    hereditament,    a    chattel 
real,  and  is  often  called  a  license  coupled  with  an 
interest. 

(5)  The  ordinary  oil  and  gas  lease  must  be  in 
writing,  because  it  is  a  conveyance  of  an  interest 
in  land. 

(6)  The  wife  should  join  in  a  lease  covering  the 
homestead,  because  such  lease  is  a  conveyance  of  an 
interest  in  land,  but,  unless  operations  will  material- 
ly  interfere   with   the   use   and   enjoyment   of   the 
homestead,  it  is  doubtful  whether  the  joinder  of 
the  wife  is  necessary. 

<7)  The  lessee  or  assignee  of  the  ordinary  oil 
and  gas  lease  has  the  right  to  defend  as  innocent 
purchaser,  inasmuch  as  a  legal  estate  or  title  is 
created,  and  vests  upon  the  delivery  of  the  lease, 
and  further,  because  a  lease  is  an  instrument  to 
which  the  registration  laws  are  applicable.  If  the 
case  of  National  Oil  &  Pipe  Line  Co.  v.  Teel,  95 
Tex.  586,  holds  to  the  contrary  it  has  been  over- 
ruled, especially  by  the  case  of  Gilmore  v.  O'Neil, 
107  Tex.  18,  173  S.  W.  203. 

(8)  If  it  be  assumed  that  the  ordinary  oil  and 
gas  lease  does  not  create  or  vest  any  estate  or  title 
which  will  support  the  defense  of  innocent  purcha- 
ser, nevertheless  a  lessee  or  assignee  has  an  equity 
or  equitable  title  or  estate,  and  should  be  pro- 
tected against  secret  equities  or  titles  of  which  the 
purchaser  had  no  notice. 


112  INNOCENT  PURCHASER 

(9)  Especially  on  account  of  the  fluctuating: 
value  of  oil  lands,  a  lessee  or  assignee,  as  innocent 
purchaser,  or  as  one  having  a  better  equity,  can  be 
fully  protected  only  by  upholding  the  lease  as 
against  the  real  owner  of  the  property,  or  against 
any  conflicting  equity  or  title.  The  real  owner  of 
the  property  should,  of  course,  be  substituted  for 
the  record  or  apparent  owner,  with  respect  to  future 
royalties  or  rentals  payable  under  the  lease. 


SriICOr,  OF  LAW  LIBRARY 

UNIVERSITY  OF  CALIFORNIA- 

LOS  ANGELES 


